Roland Fischer
Business Planning
with SAP SEM
Contents
Acknowledgements 11
Foreword 13
1 Introduction and Overview 15
1.1 Introduction ...................................................................................................... 15
1.2 Structure of the Book ...................................................................................... 16
1.3 Using the Book ................................................................................................. 17
2 Basics of Business Planning 19
2.1 Business Foundations for Planning ............................................................... 19
2.1.1 Definition of the Term Planning ...................................................... 21
2.1.2 Planning Structure ............................................................................. 27
2.1.2.1 Period .................................................................................. 28
2.1.2.2 Levels ................................................................................... 30
2.1.2.3 Closing Remarks on Periods and Levels .......................... 40
2.1.2.4 Areas .................................................................................... 41
2.1.3 Planning Flow .................................................................................... 47
2.1.3.1 Direction ............................................................................. 47
2.1.3.2 Organization ....................................................................... 49
2.1.3.3 Techniques .......................................................................... 50
2.1.4 Planning Integration .......................................................................... 52
2.1.4.1 Vertical or Temporal Integration ...................................... 55
2.1.4.2 Horizontal or Factual Integration ..................................... 58
2.2 Dynamic Simulation ......................................................................................... 65
2.2.1 Background ........................................................................................ 65
2.2.2 Modeling Concept ............................................................................. 67
2.2.3 Deriving Model Behavior with Simulation ..................................... 69
2.2.4 Dynamic Simulation as an Enhancement of Existing Planning
Instruments ........................................................................................ 71
2.3 IT Support of the Planning Process ............................................................... 73
2.3.1 Challenges of IT-Supported Planning .............................................. 74
2.3.1.1 Design-Related Challenges ............................................... 74
2.3.1.2 Individuality and Standardization .................................... 75
2.3.1.3 Data Retrieval ..................................................................... 76
2.3.1.4 Technical Challenges ......................................................... 76
2.3.2 IT Support for Planning: Requirements
and Optimization Potentials ............................................................ 77
Contents 5
3 SAP Business Information Warehouse 81
3.1 The Three-Layer Model of SAP BW ............................................................... 82
3.1.1 Extraction Layer (Data Provision) .................................................... 83
3.1.2 Administration Layer (Data Storage and Modeling) ...................... 84
3.1.3 Presentation Layer (Data Analysis and Reporting) ........................ 85
3.2 SAP BW Settings – Data Modeling ............................................................... 87
3.2.1 SAP BW Data Model: Extended Star Schema ................................ 87
3.2.2 InfoObjects ......................................................................................... 89
3.2.2.1 Characteristics .................................................................... 89
3.2.2.2 Key Figures .......................................................................... 94
3.2.3 InfoProviders ...................................................................................... 96
3.2.3.1 InfoCube ............................................................................. 96
3.2.3.2 MultiProvider ...................................................................... 99
3.3 SAP BW Settings Relevant to SAP SEM-BPS .............................................. 99
3.3.1 Modeling: Key Figure Model and Account Model ........................ 100
3.3.2 Further Aspects of Modeling ............................................................ 102
3.3.3 Presentation Layer: Flag ODBO and
Variable 0S_RQMRC ......................................................................... 104
3.4 Business Content .............................................................................................. 105
4 Introduction to SAP SEM-BPS 109
4.1 SAP SEM-BPS in the Context of mySAP Business Suite ............................ 110
4.1.1 mySAP Business Suite, mySAP Financials, and SAP SEM-BPS ..... 110
4.1.2 Business Analytics .............................................................................. 113
4.1.3 Strategic Enterprise Management (SEM) ........................................ 117
4.2 Basics of SAP SEM-BPS ................................................................................... 120
4.3 Planning Workbench ....................................................................................... 122
4.3.1 Basics: Planning Environment, Modeling, and InfoProviders ...... 123
4.3.2 Architecture ........................................................................................ 126
4.3.2.1 Planning Area ...................................................................... 129
4.3.2.2 Planning Level .................................................................... 134
4.3.2.3 Planning Package ................................................................ 136
4.3.2.4 Planning Profile .................................................................. 137
4.3.2.5 Variables .............................................................................. 138
4.3.2.6 Hierarchies .......................................................................... 141
4.3.2.7 Additional Functionalities: Memory, Locking, and
Packaging Concept ............................................................. 145
4.3.2.8 Special Functions for Characteristics ............................... 147
4.3.3 Functions ............................................................................................ 149
4.3.3.1 Copy and Copy to Several Target Objects ...................... 155
4.3.3.2 Delete and Delete Invalid Combinations ........................ 155
4.3.3.3 Reposting (with or without Characteristic
Relationships) ..................................................................... 156
4.3.3.4 Revaluation ......................................................................... 157
4.3.3.5 Distribution (with Keys or with Reference Data) ........... 158
6 Contents
4.3.3.6 Valuation ............................................................................. 160
4.3.3.7 Formula FOX function ....................................................... 162
4.3.3.8 Exit Function ...................................................................... 167
4.3.3.9 Forecast Function .............................................................. 168
4.3.3.10 ”Currency Translation” and ”Currency Translation
(Account-Based)” ............................................................... 170
4.3.3.11 Conversion of Units of Measure ...................................... 172
4.3.3.12 Accumulate Balances ......................................................... 172
4.3.3.13 Allocation Function ........................................................... 174
4.3.3.14 Offsetting Entry (Account Determination) ..................... 179
4.3.3.15 Amortization ....................................................................... 180
4.3.3.16 Time Lag Function ............................................................. 182
4.3.3.17 Net Present Value and Internal Interest Rate ................. 185
4.3.3.18 Planning Sequence (Local and Global) ............................ 187
4.3.3.19 Documents ......................................................................... 188
4.3.4 Layouts ................................................................................................ 190
4.3.4.1 Step 1: Basic Settings ......................................................... 190
4.3.4.2 Step 2: Detailed Settings ................................................... 193
4.3.4.3 Step 3: Layout Preview ..................................................... 194
4.3.5 Planning Folder .................................................................................. 196
4.3.6 Web Interface Builder ....................................................................... 199
4.3.7 Presentation Options—Concluding Remarks ................................. 201
4.4 Powersim ........................................................................................................... 203
4.4.1 Realization of the Modeling Concept ............................................. 203
4.4.2 Meaning of Model and Data ............................................................ 205
4.4.3 Integration with SAP SEM-BPS ........................................................ 205
4.4.4 Simulation of Future Scenarios ........................................................ 209
4.5 Status and Tracking System (STS) ................................................................. 211
4.6 Planning Applications for Profitability Planning and
Financial Budgeting ......................................................................................... 219
4.6.1 Financial Analytics: Cost Center Planning ...................................... 222
4.6.2 Financial Analytics: Sales and Profitability Planning ...................... 225
4.6.3 SAP SEM-BPS: Balance Sheet and
Profit and Loss Planning ................................................................... 228
4.6.4 SAP SEM-BPS: Investment Planning ............................................... 232
4.6.5 Financial Analytics: Liquidity Planning ............................................ 234
4.6.6 Integration of Planning Applications ............................................... 235
4.7 Integration of SAP SEM-BPS .......................................................................... 235
4.7.1 SAP SEM-BPS and SAP R/3 .............................................................. 236
4.7.1.1 Cost Center Planning (Retractor for CO-CCA) ............... 237
4.7.1.2 Sales and Profitability Planning
(Retractor for CO-PA) ....................................................... 245
4.7.1.3 Project Planning (Retractors for PS and IM) ................... 248
4.7.2 SAP SEM-BPS and Other SAP BW Applications
(SAP APO, Business Analytics, and SAP SEM) ............................... 251
4.7.3 Possible Integration Scenario: SAP R/3,
SAP SEM-BPS, SAP APO, and Business Analytics .......................... 253
Contents 7
5 Project-Based Implementation of Inte-
grated Profitability and Financial Planning
with SAP SEM-BPS 257
5.1 Basics of Project Implementation .................................................................. 258
5.1.1 Traditional Procedure Model ........................................................... 258
5.1.1.1 Phase I: Project Planning ................................................... 259
5.1.1.2 Phase II: Design .................................................................. 260
5.1.1.3 Phase III: Implementation ................................................. 261
5.1.1.4 Phase IV: Cutover ............................................................... 262
5.1.1.5 Phase V: Optimization ....................................................... 262
5.1.1.6 Procedure in This Section ................................................. 262
5.1.2 Special Requirements of an SAP SEM and
SEM BW Project ................................................................................ 263
5.2 Phase I: Project Planning—Definition of Goals and Scope ....................... 265
5.3 Phase II: Design ................................................................................................ 267
5.3.1 Business Blueprint .............................................................................. 267
5.3.1.1 Organizational Aspects of Planning ................................. 267
5.3.1.2 Planning the Global Parameters ....................................... 268
5.3.1.3 Personnel Plan .................................................................... 269
5.3.1.4 Cost Center Plan ................................................................ 269
5.3.1.5 Investment Plan .................................................................. 273
5.3.1.6 Profitability Plan ................................................................. 275
5.3.1.7 Plan Profit and Loss Statement ........................................ 277
5.3.1.8 Budgeted Balance Sheet .................................................... 281
5.3.1.9 Financial Budget ................................................................. 291
5.3.1.10 Key Figures .......................................................................... 297
5.3.2 IT Design ............................................................................................. 299
5.3.2.1 Step 1: Definition of the Integrated Model .................... 300
5.3.2.2 Step 2: Modeling in SAP BW ............................................ 307
5.3.2.3 Step 3: Modeling in SAP SEM-BPS .................................. 318
5.4 Phase III: Implementation .............................................................................. 351
5.4.1 Overview of Planning Areas ............................................................. 352
5.4.2 Cost Center Planning ........................................................................ 353
5.4.3 Profitability Planning ......................................................................... 356
5.4.4 Investment Planning .......................................................................... 360
5.4.5 Profit and Loss Planning .................................................................... 365
5.4.6 Balance Sheet Planning ..................................................................... 366
5.4.7 Financial Budgeting ........................................................................... 373
5.4.8 Key Figures ......................................................................................... 373
5.4.9 Global Plan Parameters ..................................................................... 374
5.4.10 Settings and Setup of The Integration Flow ................................... 375
5.5 Phase V: Optimization ..................................................................................... 377
5.5.1 Step 1: System Steps During Execution of a
Planning Function .............................................................................. 378
5.5.2 Step 2: Analysis Tools (Reports) ....................................................... 379
5.5.3 Step 3: Optimization Areas .............................................................. 380
8 Contents
6 Concluding Remarks and
a Look Ahead 385
A Chart of Accounts 390
B Literature 392
C List of Abbreviations 395
D About the Authors 398
Index 399
Contents 9
Acknowledgements
Only rarely does a single person produce a book, and the creation of this
book is no exception. Therefore, I'd like to take this opportunity to
express my heartfelt thanks to all of those who contributed to it, mostly
behind-the-scenes.
In particular, I'd like to thank my former colleague at IDS Scheer AG,
Joachim Schirra. He worked with me on this project for a long time, offer-
ing important comments, particularly regarding the theoretical aspects of
business planning, and helping me to select the bibliographical sources.
He and I shared the exciting age in which SAP SEM slowly became a mar-
ketable product.
I'd also like to thank Kai Berendes of Powersim GmbH, whose expert con-
tributions on dynamic simulation and its implementation at Powersim
add a special quality to this book.
Finally, I must thank all those who sacrificed their free time to correct the
book. In addition to formal proofreading, their constructive criticism
often served as the starting point for reworking entire passages for better
readability. The diligent proofreaders included Markus Wallau, with
whom I also worked at IDS Scheer AG, and Antonio Madueno, my cur-
rent colleague at Roche AG.
Mulhouse, France, June 2003
Roland Fischer
Acknowledgements 11
Foreword
Strategic enterprise planning is increasingly becoming a continuous pro-
cess that involves all areas of an enterprise. The last few years have
focused progressively more on integrated business planning as a dynamic
management instrument. Both strategically and operatively, enterprises
are forced to perform integrated planning across functional areas. Given
the trends toward increasing internationalization, greater competitive
pressure, and growing complexity, only enterprises that use integrated
and planning methods with foresight will enjoy lasting success. Using
modern information and communications technology as a link between
strategic planning and its implementation in business processes is an
indispensable part of this success. SAP Strategic Enterprise Management
(SAP SEM) is a tool that covers operative and strategic decision-making in
the context of planning.
In this book, Roland Fischer provides a detailed overview of the current
status of business planning. You'll find an extensive discussion of Business
Planning and Simulation (BPS) as a subset of SEM. BPS is addressed in the
context of the SAP environment and how it relates to the new tools based
on the SAP NetWeaver platform. The author introduces SAP Business
Information Warehouse (SAP BW), which collects, formats, and makes
available enterprise data for analysis by SAP SEM and its BPS component.
SAP SEM-BPS supports dynamic and real-time business planning. The
planning applications offer a solution for an enterprise's standard tasks,
such as balance-sheet or profitability planning, with an option for configu-
ration. Specialized types of planning functions or preconfigured planning
objects, such as planning areas, levels, and functions, are available. The
book serves as an implementation project that gives readers a detailed
view into the procedures for implementing integrated, IT-supported
enterprise planning, based on sample profitability and financial planning.
Roland Fischer explains how to design integrated business planning and
how an integrated information system can help support planning. He viv-
idly describes the experience he has gained in multifaceted projects. The
reader is guided through the somewhat complex structures of dynamic
planning. This book is suitable not only for managers and enterprise con-
sultants, but also for students and scholars of related application areas.
Saarbrücken, Germany, July 2003
August-Wilhelm Scheer
Foreword 13
1 Introduction and Overview
Planning activity provides the means of testing the quality
and coherence of management's mid- and long-term objec-
tives and developing a common understanding of those objec-
tives.
Kenneth Corefield1
1.1 Introduction
Marketing another business planning book is no simple task, given that
many books on the subject already exist. This particularly holds true for
theoretical considerations of business planning. With the mounting com-
plexity and dynamism of the enterprise environment and the growing
interdependence of enterprise structures, increasingly serious problems
surface—problems that can be overcome only with the assistance of new
forms of management and new management instruments.
In this environment, integrated business planning as a dynamic manage-
ment instrument becomes ever more significant. Based on this develop-
ment, an observer must quickly realize that the increasing complexity of
planning processes and their integration, along with the growing amount
of data to be processed, can no longer be supported by partially inte-
grated planning systems. Only completely integrated planning systems—
those that implement a complete exchange of information between indi-
vidual planning areas and individual planning horizons—can withstand
the developments of business planning.
The goal of this book is to introduce the reader to a completely integrated Goal of this book
planning system, beginning with a theoretical presentation of integrated
business planning, namely, SAP Strategic Enterprise Management (SEM)
and the design of its Business Planning and Simulation (SAP SEM-BPS)
component.
This book is the first book to address SAP SEM-BPS and, unlike most
books on business planning, details the multifaceted aspects of integra-
tion from a theoretical and practical level as realized in SAP SEM.
1 Corefield, 1984, p. 23.
Introduction and Overview 15
1.2 Structure of the Book
This book can be divided into three main topical areas:
1. Theoretical basics of integrated business planning
2. Detailed description of the functionalities of SAP SEM-BPS and the
basics of SAP Business Information Warehouse (SAP BW) required for
SAP SEM-BPS
3. Realization of the techniques learned in Chapter 2 in the context of a
project on integrated profit and financial planning
Chapter 2: basics The first area (Chapter 2) provides the reader with a comprehensive foun-
of business dation for business planning. In the first section of Chapter 2, relevant lit-
planning
erature on this topic is introduced and the recurring and interrelated inte-
grative aspects of planning occupy the foreground of this presentation.
However, this section does not describe the various approaches to plan-
ning often used in practice, such as zero-base budgeting, because such
methodologies are often used independently of planning software and
are therefore not relevant to this book. Regarding the periodicity of plan-
ning, this area explores the repetitive types of planning used in an enter-
prise rather than occasional or unique planning, such as foundational,
recapitalization, or liquidation planning.
A later section of Chapter 2 covers one methodology for planning—
dynamic simulation—in particular, because it is essential to understand
the simulation components of SAP SEM-BPS. In conclusion, the chapter
develops the requirements of IT support for integrated planning. When
looked at collectively, the requirements constitute a criteria catalog that
every completely integrated planning system, and, of course, SAP SEM-
BPS, must meet.
Chapters 3 and 4: The second area of this book is divided into two major chapters. Chapter
SAP Business 3 provides the reader with a quick presentation of the basics of SAP BW,
Information
Warehouse (SAP which is required to understand SAP SEM-BPS. Then, Chapter 4 intro-
BW) and SAP duces the modeling concept and the individual functions of SAP SEM-
SEM-BPS
BPS in detail. The author's experience with SAP SEM-BPS on various
projects also helps readers to understand each function and anticipate
difficulties that might arise. Readers will also learn where SAP SEM-BPS
fits in the wider SAP environment. This section limits itself to a descrip-
tion only of the elements of planning areas necessary for integrated profit
and financial planning. A special subsection describes the Powersim mod-
eling tool used for dynamic simulation. In conclusion, this section returns
to the topic of integration—by offering a step-by-step introduction to the
16 Introduction and Overview
system-side relationships of SAP SEM-BPS with other SAP applications—
so that it can then show a complete integration flow.
The third area (Chapter 5) begins with a general description of the project Chapter 5: reali-
methodology that the chapter uses. It highlights the specific and unique zation of profit
and financial
characteristics of SAP SEM and SAP BW projects. The remainder of the planning in SAP
chapter addresses project methodology. It describes the business blue- SEM-BPS
print, the IT design, and the implementation design of integrated profit
and financial planning. Chapter 5 concludes with a presentation of vari-
ous approaches to optimization that are relevant to SAP SEM-BPS.
The book ends with Chapter 6, which measures SAP SEM-BPS against the Chapter 6:
requirements criteria described for planning software discussed in Chap- outlook
ter 2. It also provides readers with an overview of the newest develop-
ments in SAP SEM-BPS.
1.3 Using the Book
As noted, this book has two goals. First, it aims to offer the reader a the-
oretical and practical understanding of integrated business planning. Sec-
ond, it provides a detailed description of SAP SEM-BPS, once again on a
theoretical basis, and then with implementation.
The following two groups of readers make up the audience, which results
from the book's dual goals:
1. The first group consists of readers who want to deal with the topic of Focus: integrated
integration in business planning. The book is especially geared to stu- business planning
dents of business administration, controllers and managers of control-
ling departments, and enterprise consultants who create business
designs for their clients.
These readers should focus on Chapter 2 and the business blueprint in
Chapter 5. In this context, the business blueprint should be seen as a
detailed continuation of Chapter 2.
2. The second group consists of readers who want to familiarize them- Focus:
selves with SAP SEM-BPS software or deepen their knowledge of it. SAP SEM-BPS
This group may also include students, and managers of controlling or IT
departments who need to consider the implementation of SAP SEM-
BPS and can use this book in their decision-making process. It also
includes all enterprise consultants who want to become familiar with
SAP SEM-BPS for potential projects or, who have already implemented
their first projects and now want to deepen their understanding of spe-
cific topics. Lastly, the book is intended for those employees in an
Using the Book 17
enterprise that has implemented SAP SEM-BPS and who now must
deal with the topic as administrators or as end users.
This group of readers will find that it is worthwhile to read Chapter 4,
which, because it is packed with information, may appear daunting at
first. Chapter 5 describes how to implement specific functions and
what system restrictions can be anticipated (see the comments on IT
design and implementation design). Readers considering the imple-
mentation of SAP SEM-BPS should read Chapters 3 through 5.
18 Introduction and Overview
2 Basics of Business Planning
”The man who doesn't know where he wants to go shouldn't
be surprised when he ends up somewhere else.”
Mark Twain
The goal of this chapter is to bring the reader up to speed with the state
of business planning as it is discussed in the current SEM literature. This
chapter is divided into three main sections. The first section introduces
the basics of business planning with the structure, flow, and integration of
planning. The second section addresses the subject of dynamic simulation
to provide the reader with a foundation for the Powersim tool, which is
discussed in Chapter 4. The third and final section of this chapter asks the
question, ”To what extent can planning software support the context dis-
cussed previously?” On the one hand, the planning software must include
the requirement resulting from an integrated planning business scenario;
on the other hand, the software can also include other functions that are
an advantage for the planning scenario and therefore exceed the require-
ments. In this way, the reader is introduced to SAP Strategic Enterprise
Management and Business Planning and Simulation (SEM-BPS). We will
evaluate just how SAP SEM-BPS meets these requirements at the conclu-
sion of this book.
2.1 Business Foundations for Planning
From an historical point of view, the term business planning refers to all
future business accounts that are in direct relationship to operating
accounting. The accounts include subareas such as planned revenue and
budgeted balance sheets.1 Over time, the concept of planning has
changed and expanded beyond its previously rather narrow definition.
Therefore, ”enterprise planning today includes the institutionalization
and formalization of all planning activities in an enterprise. The focus is on
enterprise planning as a whole in coordination with all business subplans
that are combined and integrated into the overall enterprise plan.”2
1 Corefield, 1984, p. 23, also speaks of ”financial number-crunching, so that a basis
was provided for monitoring and controlling budgets year-on-year.”
2 Schwinn, 1998, p. 25.
Basics of Business Planning 19
Structure of this Section 2.1.1 has more details on business planning and also defines fre-
chapter quently used terms such as budget and forecast. In Section 1.1.2, you will
find extensive information on the structure of planning, including topics
such as planning periods (long-, short-, and mid-term), planning levels
(dispositive, operative, tactical, and strategic), and planning areas (value-
and quantity-oriented plans). Section 2.1.3 deals with the dynamic side of
planning, even when it addresses aspects of the organization model that
are relevant to planning. This section also provides insight into the follow-
ing topical areas: the direction of planning (top-down, bottom-up, and
mixed), the organization of planning (centralized, decentralized, and so
on), and various techniques for planning, such as planning versions, roll-
ing planning, and so on.
In Section 2.1.4, where the business basics of planning are examined, you
can delve into the central topic of the book—planning integration from
various points of view. It could also have been assigned to the subject
planning structure, however, because of the significance of planning inte-
gration, and because both structure- and flow-oriented aspects are part
of the integration, it is addressed in a separate section. Figure 2.1 illus-
trates the main categories of planning, which reflect the structure of the
book.
Figure 2.1 Basic Categories of Planning
20 Basics of Business Planning
2.1.1 Definition of the Term Planning
The quotation by Mark Twain, which was certainly not intended for
enterprises or employers, describes the very essence of business planning
because it deals with our theoretical preparation for future decisions.
Planning should design the future of an enterprise with the aim of control-
ling the development of the enterprise toward its goals. By appending
”organization” to the term, notes Gutenberg, we understand ”planning”
as the very design of an organization with the projection of business
events in the future.3
Planning presupposes holistic thinking and action that integrates interde- Definition:
pendent planning areas. This book will often refer to this aspect of inte- planning system
gration. The characteristics of organization and integration lead to the
term integrated planning system,4 which is the foundation of all business
planning. It serves to organize and create coordination among diverse
planning activities so that various subplans can be combined into an
overall plan, while still considering the diverse interdependencies
involved. Kretschmer describes in great detail the requirements that a
planning system must fulfill, regardless of which industry an enterprise
belongs to. He notes the following criteria:
The planning system must be goal-oriented.
The planning system must be unambiguously future-oriented.
Dispositive activities must be coordinated temporally and factually.
Guidelines for a generally valid and formal process to create individual
plans and planning steps must be defined, at least at the conceptual level.
The dependencies of the subplans must be identified and considered
in the holistic use of planning.
Information on alternate plans must be available.
According to Franke, the literature mentioned these kinds of planning
systems as early as the 1970s; however, until the publication of his book
in the mid-eighties, they had not yet been implemented in enterprises.
The literature also generally mentions an additional aspect, that of plan- Planning as a
ning as a management instrument, which maintains that planning is part of management
instrument
the management process. It is treated as the first level of ascertainment,
after the formulation of enterprise policy.5 In this context, planning can
3 Gutenberg cited by Ehrmann, 1999, p. 61.
4 Franke, 1985, pp. 11f. and Kretschmer, 1979, p. 48.
5 Unger, 1994, p. 163.
Business Foundations for Planning 21
be only partially delegated (see Section 2.1.2). In addition, planning,
itself, is seen as a central instrument of enterprise management. It
includes enterprise activity in the broadest sense6 to reveal the potential
goals of the enterprise, make conflicting goals transparent, and use the
available internal resources optimally to realize the goals.7 In this context,
changes in the market and in the competition are to be anticipated, iden-
tified, and considered in planning.
The notion of a systematic design of future action is closely linked to the
idea of alternate actions. The alternate actions that can be realized in the
future should be worked out first. Then, they are run through and their
effects are evaluated. Only then are the optimal alternatives selected
according to the goals set by management and ultimately defined as a
reserved decision.
Preparation and The planning criteria mentioned so far can be summarized in two princi-
determination of pal, consecutive categories—planning can also be defined as a two-level
decisions
process—preparation for decisions (a preview) and determination of deci-
sions (making management decisions).8 Preparation for decisions helps to
determine future events: ”information relevant to decisions is made avail-
able—information that can be used in working out alternate actions that
can be realized in the future.”9 Based on the preparation for decisions,
enterprise management can then work in the context of determination of
decisions to determine future action, namely, the selection of the optimal
alternate action. The actual operative realization of planning occurs in the
context of budgeting.
Additional basic The following points highlight some important aspects of planning to
aspects of complement the criteria and definitions mentioned so far:10
planning
1. Dynamic
Planning is not static and therefore does not produce any ultimate
solutions.
2. Effective planning
Effective planning is characterized by objectivity, competence, creativ-
ity, and an orientation toward problems and solutions.
6 Fischer, 1996, p. 4.
7 Kretschmer, 1979, p. 15.
8 Frank, 1985, p. 3 and Schug, 1980, pp. 1f.
9 Schug, 1980, pp. 1f.
10 See Fischer, 1996, p. 4 for the first point; Ehrmann, 1999, pp. 19 and 61 for the
second point, and Kretschmer, 1979, p. 135 for points 3 through 6 and p. 13 for
point 9. Schwinn, 1998, pp. 27f. addresses points 7 and 8 in more detail.
22 Basics of Business Planning
3. Completeness
Successful planning must be complete—it must capture all events and
interdependencies in the enterprise.
4. Interdependency of subplans
Optimally, the mutual dependence of the subplans should be consid-
ered part of planning (see the section on simultaneous planning and
total planning).
5. Equalization law of planning
In the short term, the overall plan must be adjusted to fix the specific
bottleneck. In the long term, the tendency must be to eradicate the
bottleneck.
6. Principle of the relevant costs
When choosing plan alternatives, the cost aspect must be considered.
7. Creativity function
The creativity of many involved employees who question traditional
procedures can increase the efficiency of activities in an enterprise.
8. Motivation function
The involvement of all employees in the planning process and their
identification with the philosophy of the enterprise can elicit strong
motivational effects.
9. Security and control
Planning pursues the long-term security and goal-oriented manage-
ment of the enterprise.
The attentive reader might have noticed that the term integrated business Integrated
planning has not yet been explicitly defined. This intentional omission can business planning
be explained: The integration (of subplans, various planning periods, and
various planning levels) is part of business planning. This definition of
business planning reduces the adjective integrated to a verbal husk, but
one that is nevertheless meaningful because it highlights an important
aspect of enterprise planning.
As noted, two significant subareas must be distinguished in business Financial business
planning—quantity plans and value plans. For the aforementioned rea- planning
sons, value plans are more closely examined in financial business planning;
therefore, it is worthwhile to define this term in greater detail.
Financial business planning includes the planning of all payment proce-
dures inherent in income and expenses: capital procurement (external
financing), capital use (investment), capital disposal (disinvestment), and
amortization. All financial transactions (even if not simultaneous) corre-
Business Foundations for Planning 23
spond to payment movements, when the transactions result from goods
movements. (Transactions that don't result from goods movements are
purely financial transactions.) Financial business planning also includes
the planning of expenses and income: profitability planning or profit and
loss planning that are closely linked to the planning of goods movements
(see Section 2.1.4). The goal of the planning of payment procedures is to
maintain liquidity; the goal of profitability planning is to maximize profit
or cost-effectiveness. The definition provided by Schug summarizes all
the preceding comments regarding financial business planning: ”thus
includes the entire complex of activities involved in the creation and opti-
mal design of payment processes, including the underlying goods move-
ments.”11
Here we must consider the terms budget and forecast. Although they
appear often in the relevant literature, they are not always clearly distin-
guished.
Definition: budget The term budget originated in the context of public administration. It
referred to the comparison of revenues and expenditures. In business
administration, budget has a broader meaning. Its most extreme interpre-
tation even equates it with planning.12
The definition of business planning already indicated that preparation and
determination of decisions results with the definition of the goal and the
action plans. Budgeting makes real the implementation of the plans by
supplementing quantity statements with values. This difference clearly
distinguishes the budget from the planning. Corefield expresses it clearly:
”Once it is agreed that the plan will be consistent with corporate objec-
tives, the first year of the plan can be turned into a budget.”13 Without
anticipating the details at the planning levels, the preceding comments
clarify that realization of the operative plans for individual areas of the
enterprise occurs in budgets. ”Budgeting means determining what funds
(financial resources) should be made available for a specific period, based
upon agreements between organizational units (specific places or
projects in the enterprise).”14 The definition by Streitferd is very detailed:
”A budget is a set of funds made available to an organizational unit for a
specific period to fulfill the tasks in its area as part of its own responsibility
11 Schug, 1980, p. 3.
12 See also Unger, 1994, p. 167.
13 Corefield, 1984, pp. 23f.
14 Unger, 1994, p. 167.
24 Basics of Business Planning
and based on a binding agreement.”15 The budget is therefore adopted
planning. As is also true of planning, budgeting performs essential func-
tions. The functions and additional criteria can be described as follows:16
Target function Functions of
The budget creates the framework by specifying (passing on) the signif- budgeting
icant plan parameters.
Integrating function
Budgeting ponders the success that can be achieved in the future and
determines the funds needed to realize that success.
Approval and allocation function
The budget must decide how to allocate the use of limited resources.
Communication and coordinating function
Budgeting promotes communication and agreement across different
functions (areas).
Control function
Budgeting sets performance benchmarks; reaching the benchmarks
can be measured by comparing them to the actual values of completed
periods.
Motivational function
The decentralized fulfillment of budgeting gives those responsible the
freedom to make decisions.
Integration function
Budgeting serves as an instrument to integrate subplans.
Overall budget
The overall budget includes the total result of all individual budgets
(the budgets of each functional area) and therefore, can permit state-
ments about the profit, the financial status, and the liquidity of the
enterprise.
If we assume that the forecast describes something that will occur in the Definition:
future if certain preconditions are met, and that planning deals with forecast
determining which preconditions appear most attractive to the enter-
prise, it becomes apparent that the forecast is an indispensable part of
planning. It must be seen as a part of planning and interpreted as a tech-
nique (instrument) of planning. Unlike budgeting, the forecast is part of
the (extended) term planning and is therefore a component of preparation
for decisions. Forecasts can be distinguished among the following types.
15 Streitferd, 1988, p. 37; cited by Unger, 1994, p. 167.
16 See Oehler, 2002, p. 152.
Business Foundations for Planning 25
Short-term forecasts are valid for up to one year. Mid-term forecasts (busi-
ness-cycle forecasts) are based on the most exact evaluation possible of
the future business cycle over a period of one to five years. Long-term
forecasts (growth forecasts) reflect a prediction of a developing trend. In
addition, forecasts can be divided into the following categories, depend-
ing on the methodology used to produce them: explorative, normative,
and intuitive. A fourth category, integrated, is the combination of all three
aforementioned categories. Table 2.1 displays an overview of the com-
mon methodologies according to the stated differentiations.17
Forecast Meth- Description Methodologies (excerpt)
odologies
Explorative Explorative methodologies are Extrapolation of time series
development-oriented methodolo- Contextual mapping
gies that analyze the development
Substitution analysis
of past and current data to extrap-
olate a trend analysis from it. They Simulation of models
are hypothetical in nature; how- Input-output analysis
ever, they do possess certain char-
Cross-section analysis
acteristics.
Historical analogy
Scenario
Iteration through synopsis
Normative Normative methodologies are Decision matrices
goal-oriented methodologies Operations research tech-
based on uniquely defined needs, niques
purposes, and goals. They help to
Network techniques
determine the optimum in a given
parameter system. System analysis
Simple decision theory
Decision trees
Genetic algorithms (generate
anomalous optimums)
Intuitive Intuitive methodologies are char- Brainstorming
acterized by an unstructured and Brainwriting
unmethodical procedure. They are
based on the principle of creative Delphic methods
thinking. Synectic
Table 2.1 Forecast Methodologies17
17 In the style of Kalscheuer, 1973, from Kretschmer, 1979, p. 141.
26 Basics of Business Planning
Forecast Meth- Description Methodologies (excerpt)
odologies
Integrated Integrated methodologies can be Combination model
defined from any combination of Integrated information system
the other methodologies, espe-
cially based on the principle of
feedback. It intuitively checks
trends determined by the explor-
ative methodology, for example.
Table 2.1 Forecast Methodologies17 (cont.)
(cont.)
In this book, forecasts are examined in more depth in the context of
dynamic simulation (as part of the explorative forecast methodologies)
because they are elements of SAP SEM-BPS functions in the Powersim
simulation tool (see Section 1.2 and Chapter 4, Section 4.4). We dis-
cussed forecasting briefly here in order to clarify how it is used in the con-
text of planning.
2.1.2 Planning Structure
This section deals with the categorization of various terms associated with
planning that often appear in the literature. They provide a framework for
planning in which the planning structure can orient itself.
The planning structure, also known as plan types,18 includes the following Areas of the
categories: planning structure
Planning period or planning horizon
This category includes the temporal aspect of planning and is tradition-
ally divided into short-, mid-, and long-term planning.
Planning level or planning purpose
This category is the factual aspect of planning, traditionally divided into
operative, tactical, and strategic planning. The various planning levels
have a hierarchical relationship to each other.
Planning area
This category divides planning in light of the various areas of the enter-
prise and follows the functional view of the organization as much as
possible. Quantity plans (goods plans) are differentiated from value
plans. Typical planning subareas include: procurement, warehouse,
production, sales, human resources, finances, costs, revenues, and bal-
18 Ehrmann, 1999, pp. 21ff.
Business Foundations for Planning 27
ance sheet. Depending on the level of detail, additional areas can be
identified.
Data situation
This category distinguishes planning with security from planning with
insecurity. In the latter category, explorative forecast methodologies, in
particular, can help to reduce the insecurity factor. The data situation is
strongly correlated first with the planning period, and then with the
planning level (this will become evident).
Content
This category includes basic planning, goal planning, strategy planning,
and measure planning.
In addition to these categories, the literature includes additional criteria;
for example, Mag divides enterprise planning according to functions (cor-
respond to planning areas), factors, terms (correspond to the planning
period), and target figures.
It's easy to define additional categories that can be combined at will.
Here it's best to select a representative and pragmatic approach. We will
focus next on the three typical categories—planning period, planning
level, and planning area. Close relationships exist among these individual
categories, especially between the planning period and the planning
level.
Readers familiar with this subject might well miss the integration category.
However, we've already noted that a separate section (Section 2.1.4) is
devoted to integration because it's easier to provide an overview of the
significance of integration, and the interface for the areas of planning
structure and planning flow, in a section devoted entirely to this category.
2.1.2.1 Period
According to the term or planning period, planning can be divided into
the following categories:
Distinguishing Very short-term planning
planning by A period of less than three months, focusing on daily planning
period
Short-term planning
A period of one year with periodic intervals during the year (usually by
month or quarter)
28 Basics of Business Planning
Mid-term planning
A period of one to five years; planning steps usually occur in annual
increments
Long-term planning
A period of more than five years; no clear upper limit exists
(Periods of 10 to 15 years are typical)
The relevant literature addresses all categories, with the exception of very
short-term planning. Here, we focus on the same three significant catego-
ries.
No unanimity about the length of each category exists. You can look at
the various categories and future periods in a timeline, but this would be
impractical.19 Ultimately, the period in which a decision can or must have
an affect and the period for which the manager must plan is influenced by
the planning period. Kretschmer even gives determination values that
significantly influence the length of the planning period.20 He speaks of
the planning horizon (the predictability of future events), the scope of the
goals (the temporal perspective of the goals), the effectivity horizon (the
scope of the effects of the planned actions), and the reaction time (the
required length of time needed to implement the desired condition or
adaptation to meet changed conditions). Influenced by these factors, the
length of planning is measured differently depending on the planning
contents and the scope of the problems involved. Ultimately, only a dif-
ferentiated concept can be made; for example, a boutique will need a dif-
ferent period than a power plant.
Short-term planning with a planning horizon of one year is subdivided as Short-term
needed into quarters or even periods of days (planning the liquidity status planning
of banks, for example). As the nature of this term implies, short-term
planning is detailed planning. The detail is reflected in a high degree of
what is actually implemented: Completeness, differentiability, and flexi-
bility are especially strong. The probability of realizing short-term plan-
ning goals is estimated as high. Short-term planning enables the realiza-
tion of mid-term plans (our next planning category) in disaggregated,
action-oriented, and measured plans.
Because it's subordinate to long-term planning in the hierarchy, mid-term Mid-term
planning is characterized by splitting up the long-term plan into subplans planning
with a higher degree of detail. In this regard, the hierarchical relation of
19 Michel, 1991, p. 41.
20 Kretschmer, 1979, p. 60, following Wild, 1974.
Business Foundations for Planning 29
mid-term planning to long-term planning is similar to the relationship
between short-term planning and mid-term planning. Consequently,
completeness, differentiability, and flexibility are less important here than
they are in short-term planning. The planning horizon can last anywhere
from two to five years, and planning is usually done on a yearly basis.
Long-term For long-term planning, the planning period can last 15 years or more and
planning can be viewed as a highly aggregated, global form of planning whose
highest priority is the long-term survival of the enterprise. This planning
period category focuses on innovations, technologies, diversifications,
and other long-term topics. Bottlenecks should never be the reason for
setting long-term goals (as defined by Gutenberg). Instead, one should
take advantage of the freedom offered by the long planning horizon and
use the time wisely and fully. According to Michel, a positive correlation
exists between the size of the enterprise and the use of long-term plan-
ning.21 He also finds that there is no correlation between the planning
scope (in the context of long-term planning) and one's inability to see
environmental changes.
2.1.2.2 Levels
In a stricter sense, the planning period feature defined previously consid-
ers only the planning period, which represents just one dimension of
planning. Therefore, the planning period alone cannot serve as a struc-
tural criterion for planning. Another dimension must be added. If the
planning term is differentiated according to factual aspects, another con-
stitutive feature arises: the level of detail in planning. In this dimension,
we can distinguish among the following planning levels, all of which have
a hierarchical relationship to each other:
Overview of Strategic planning: doing the right thing
planning levels
Tactical planning
Operative planning: doing things the right way
Dispositive planning: making things right
(this means corrections or adjustments)
Dispositive Although the literature rarely mentions dispositive planning22 (the initia-
planning tion of corrective actions in the event of deviations and getting a perspec-
tive on the preview in periods of less than one year) and we don't discuss
this topic at length in this book, the other terms have become quite com-
21 Michel, 1991, p. 41.
22 Grotheer, 1995, p. 138.
30 Basics of Business Planning
mon. However, note that the definitions of operative and tactical planning
levels are not uniform and that the terms can be used interchangeably.
Regarding the controversy over the distinctness of these two terms,
Schwinn notes that in older sources for business planning, there is usually
a preference to list three planning levels: tactical, operative, and strate-
gic.23 More recent sources speak of only two levels: operative and strate-
gic. Regarding the planning-period dimension, the literature refers to
short-term and mid-term operative planning and long-term strategic
planning.
This development is understandable, given that, in the 1970s and 1980s,
business planning as it is presented here was a topic for theoreticians
only. Today, planning has become quite commonplace, as can be seen in
the various software products that exist in this area. As a rule, software is
sold only when a potential market exists. Consequently, the practitioners
have set the tone: They avoid a strong differentiation and the term tactical
planning, which has no single definition in any case.
Strategic Level
Looking at the planning levels in the order in which they are to be per-
formed, it's best to start with strategic planning, the highest level in the
hierarchy. As long-term planning, strategic planning essentially has the
following task: ”to recognize options for profit, to create new potentials,
and to maintain those that exist” and to ensure the survival of the enter-
prise by securing its ability to earn revenue over the long term.24 To
ensure the survival of the enterprise, it is essential that the leadership
(upper management) of the enterprise performs strategic planning—at
least in theory. According to its character, long-term planning looks at the
long term: a period of five to 10 years is realistic. In an extreme case, one
also speaks of planning without a time horizon.25 As far as the term is con-
cerned, the parallelism to long-term planning as a characteristic of the
planning period becomes clear here. Because of the broad planning hori-
zon and the related rather limited basis of information, strategic planning
enables only a rough view. Detailed planning or planning that focuses
only on bottlenecks would be counterproductive here. The following typ-
ical characteristics also apply. Planning activities are first focused on the
entire enterprise, including its subareas (business areas or business fields).
The results of planning are primarily qualitative statements that can only
23 Schwinn, 1998, p. 29.
24 Ehrmann, 1999, p. 113.
25 Franke, 1985, p. 5.
Business Foundations for Planning 31
be verbalized and not given as a number. No figures (quantitative) are
planned.
Strategic At the start, we emphasized the long-term character of the strategic level.
decisions Here, however, we must note that it's entirely possible for strategic plan-
ning to have a short- or long-term character. Michel speaks of planning
periods greater than one year.26 However, this doesn't mean that strate-
gic planning should be considered and implemented in the short term.
Doing so would normally occur in the context of integrated planning.
Instead, it's a matter of strategic decisions that are determined and imple-
mented in short order. Such decisions might include make-or-buy deci-
sions that have short-term results but also have a strategic significance
because of their importance. These short-term decisions are character-
ized by a modicum of planning and therefore are of little interest in the
context of strategic planning.
Main areas of Main Areas
strategic planning According to Koch, there are three main areas to distinguish in strategic
business planning:27
Strategic perspective planning
Preplanning individual strategic projects
Integrated strategic planning
Strategic Strategic perspective planning occurs from the longest possible view. Its
perspective task is to create non-integrated and very global plans in the context of the
planning
production and sales programs. It uses primarily intuitive forecast meth-
odologies to determine what product groups will be in demand among
which sales markets in the distant future. Only long-term planners with a
visionary feel for the market and a high level of creativity can master this
task. Typical characteristics include minimal formalism (i.e., only a small
amount of strictly defined procedures to follow) and a very global direc-
tion in planning. Strategic perspective planning does not pay attention to
the financial details or expenses incurred as a result of this planning.
Individual The preplanning of individual strategic projects, however, deals with
strategic projects select, actual projects of strategic importance for the enterprise. Enter-
prise areas submit suggestions to upper management, which then exam-
ines the suggestions in terms of minimum profitability (i.e., the profit-
ablity that these suggestions have to at least achieve) and security. The
26 Michel, 1991, p. 42.
27 Koch, 1977, pp. 4f. and 71ff.
32 Basics of Business Planning
nature of this planning is not linked to any time period. Depending on the
size of the enterprise, suggestions for these kinds of projects are prese-
lected from various levels of the hierarchy.
Unlike the preceding area of strategic enterprise planning, strictly formal- Integrated
ized procedures and rules for the time planning characterize integrated strategic planning
strategic planning. ”The practical importance of integrated strategic plan-
ning arises because it is the only form of action planning that meets the
requirements of the long term and the integrity of planning comprehen-
sively.”28 In his definition of strategic planning, Koch notes that it's not
only a matter of target planning, but also action planning and execution
planning, as is the case with operative and tactical planning. He states
that not only does action planning define goals and strategies; it also sets
global actions while coordinating the activities.
Therefore, integrated strategic planning applies to all areas of the enter-
prise and considers coordination at various levels. Unlike strategic per-
spective planning, integrated strategic planning also verifies whether the
planned actions are financially feasible to implement, and thoroughly
sound and secure for the enterprise as a whole and its personnel.
Because of the non-integrated nature of strategic perspective planning
and preplanning of individual strategic projects, they are not addressed
here. Given the complexity of integrated strategic planning, the following
schematic overview would serve the reader well.
Strategic Enterprise Planning
Strategic Integrated Individual
Perspective Strategic Strategic
Planning Planning Project Planning
Skeleton Planning Program Planning
1. Formulating Strategic Goals 4. Implementing Planning
Defining Target Goals Strategy Implementation
2. Strategic Analysis + Forecast 5. Strategic Monitoring + Adjusting
Analysis of AS-IS Situation Analysis of Current Situation
3. Development of Strategies
– Strategic Formulation
– Strategic Evaluation
– Selection
Figure 2.2 Overview of Strategic Enterprise Planning
28 Koch, 1977, p. 50.
Business Foundations for Planning 33
Integrated Strategic Business Planning
Integrated strategic business planning consists of two consecutive primary
processes: strategic skeleton planning and strategic program planning.
Each can be subdivided into several main tasks.
Integrated As a preliminary level of strategic program planning, strategic skeleton
planning: strategic planning provides the framework for creating the strategic program. Its
skeleton planning
goal is to determine rough targets, key figures, and metrics for the activi-
ties in individual business areas. Examples include the rate of return on
growth, profitability, and margin. Strategic skeleton planning consists of
three primary activities: the formulation and determination of strategic
goals (as target specifications), the strategic analysis of the as-is situation
(as confirmation of that situation), and a forecast and development of
strategies via strategic formulation, evaluation, and selection.
Integrated Strategic program planning builds on strategic skeleton planning. It deals
planning: strategic with planning the strategic program. It rechecks the strategies defined in
program planning
strategic skeleton planning for their ability to be implemented. If the
strategies are accepted, it implements them in appropriate plans. If the
term is expanded a bit, it also includes strategic control. Strategic pro-
gram planning also includes two additional primary tasks: strategic imple-
mentation and strategic adjustment and control.
Integrated The five primary tasks (or detailed phases) of integrated strategic planning
planning: are performed consecutively. The following steps provide more details.
planning steps
Step 1: formu- The first phase formulates and later defines strategic goals. As the driving
lating and force in this phase, upper management derives the formulated goals
defining goals
either from overall enterprise goals (preserving assets, capital, and so on)
and the mission statement. It might also derive the goals from specific
market or product-oriented goals, in which case the latter must agree
with the former. It's entirely possible that the goals defined in this phase
must be revised based on the strategy analysis of the second phase. How-
ever, the sequence of setting goals (as targets) followed by determining
the strategy to achieve these goals should be maintained if the process is
to remain honest.29 Intuitive forecasting characterizes the first phase.
Step 2: analyzing Strategic analysis of the current situation characterizes the second phase.
the current Starting from the recognition that an enterprise is not an independently
situation
operating organization when considered globally, this phase uses a great
deal of analysis aids to examine how the enterprise positions itself in the
29 See Mag, 1995, p. 158 and Schwinn, 1998, p. 30.
34 Basics of Business Planning
current and future environments, both internally and externally. The envi-
ronment of the enterprise encompasses many aspects: economic, socio-
political, and ecological. Starting from the current environment and
future developments, this phase determines and staffs promising business
areas in the long run and in light of the goals defined in the first phase.
Implementation of the strategies is a reflection of how the strategies are
developed and defined; see steps 3 and 4 below.
The analysis essentially focuses on the potential for success that lies inside
and outside of the enterprise—namely, factors, sources, and activities
that can produce current or future success. This potential for success
arises from market activity, the quality of the enterprise's management
and personnel, the intensity of investment, research and development
efforts, and many other factors.30 Recognition of the potential that
already exists is integral to tapping into this wealth and creating new
opportunities. They must also be quantified. Various analysis instruments
have been developed to support the process of this second phase. Typical
tools include strength–weakness profiles, chances–risks profiles, and
other common analyses, such as gap, industry, and market analyses. In
this context, the portfolio technique has proven useful; especially the
portfolio matrix of the Boston Consulting Group (BCG matrix) has
become well known. The BCG matrix represents strengths and weak-
nesses by relative market share and opportunities and risks by the market
growth dimension. The result is four fields, traditionally known as stars,
bad dogs, cash cows, and question marks. We do not delve further into
these various techniques.31
After analyzing potential strategies in phase two, the next task involves Step 3:
the definition of the strategies and the evaluation of alternatives. This developing
strategies
phase quickly determines if the Greek sense of strategy (planned action)
can be rewritten in the context of business to mean the use of the actual
and potential strengths of an enterprise to accommodate environmental
changes and still meet its goals.
Final determination and evolution of strategies can occur only in the con-
text of the goals set in the first phase. If needed, the goals can be
reworked if they conflict with the various strategies. The strategies must
also be compatible unto themselves; otherwise, they cannot be imple-
mented in the next phase. Unidirectional and multidimensional simula-
tions can be used to support the selection of strategies.
30 Ehrmann, 1999, p. 114.
31 For more detailed information, see Mag, 1995, pp. 160ff.
Business Foundations for Planning 35
Step 4: imple- The fourth and penultimate phase, strategy implementation, involves two
menting planning tasks. First, it implements the highly aggregated values from the first
phase into a long-term operative or tactical plan. Second, it must create
conditions for its acceptance among the planning subjects so that the
strategies can, in fact, be converted into plans. In this phase, we move to
a lower level in the hierarchy.
In addition, stretched planning must be distinguished from compact plan-
ning in the context of phase 3 regarding the time of making a decision.
Stretched planning is also known as drawer planning and begins with the
knowledge that various optimal strategies coexist, depending on certain
hypothetical environmental conditions, so that a plan can be pulled out
of a drawer on rather short notice when the hypothetical conditions
become real. Compact planning, however, pursues only one optimal alter-
native, which is implemented in every case. Compact planning makes
sense if the risk of an erroneous decision can be minimized.32
Step 5: The last phase of integrated business planning is strategic monitoring. The
monitoring and matter is less one of monitoring adherence to individual results, which
adjusting
come from plan–actual comparisons at the level of budget control. Other
plan levels are responsible for this task. Rather, it should determine
whether the goals defined by upper management and the strategies
derived from the goals are being adhered to globally. In addition, moni-
toring planning can also be understood as revolving planning, which offers
some additional security to strategic planning by serving as a periodic and
permanent reworking of the currently planned values. The strategic plan
is monitored annually. First, short-term actual and plan values are com-
pared to long-term planning. Second, a year's data is transferred from a
global view into a detailed view and can therefore be checked in more
detail.
Mid-Term Operative Level (Tactical Level)
In actual practice, mid-term operative planning has established itself as a
second level in the fact-oriented planning hierarchy; it is also known as
tactical planning. The literature only rarely addresses it in detail, so that
readers almost get the impression that mid-term operative planning is a
residual product of the strategic plan minus the short-term operative
plan. Its character would then be that of a stopgap or a collapsible zone.
In fact, within the literature only Koch provides a detailed description,33
32 Koch, 1977, pp. 73f.
33 Koch, 1977, pp. 99ff.
36 Basics of Business Planning
which this book will follow for the most part. As noted in the fourth
phase of integrated strategic business planning, mid-term operative plan-
ning deals with the translation of the defined strategies into detailed
operative programs. Similar to a top-down procedure, the specifications
of strategic planning are to be transformed into specifications or individ-
ual actions of the subareas in the enterprise. These affected areas include
the operative business areas (such as divisions and subsidiaries) and oper-
ative central areas (such as finances and personnel). Planning does not yet
affect the individual subareas of short-term operative planning (such as
procurement plan and warehouse plan).
Operative planning of the business areas also distinguishes two types of Two types of mid-
mid-term planning: term operative
planning
Special, product-related operations (product operations)
These operations target the development of new products, sales oper-
ations of various product types, and production operations in the
sense of a capacity check and investment decision.
Infrastructural actions
These actions affect all product lines in the same manner. They serve
ongoing operation of the business area, such as an expansion or a
rationalization of administrative buildings and employees or the instal-
lation of larger computer facilities.
In many cases, the planning of the central areas (central invoicing, IT, main
administration, financial department, and so on) can be derived from the
planning of the operative business areas. Each business area maps an exact
plan of the services that it receives from the central area. Planning of main
administration and similar central functions is excluded here and should
be planned originally in the context of strategic specifications.
Since the operative business areas receive relevant information from the
central areas, the resulting mid-term operative planning can be regarded
as harmonized concerning the relationship of the planning values
between these areas. However, a closer examination shows that the inte-
gration is only partial. For example, there's no coordination of the busi-
ness areas regarding common maximization of profit or enterprise secu-
rity. These concerns are the purview of integrated strategic overall
planning.
Business Foundations for Planning 37
Planning period In general, the planning period usually lasts one to five years, where the
of mid-term planning is divided into annual increments. Good reasons exist for a flex-
operative planning
ible timeframe. According to the nature of mid-term planning, the
desired level of detail requires a high degree of exactitude of the forecast.
As of a certain planning horizon, it becomes increasingly more difficult to
predict revenues and expenditures. As a rule, five years is the maximum
time limit required to forecast profit and expense.
The minimum time limit for the mid-term operative planning should not
fall below the average length of the capital allocations of a strategy. The
mid-term plan should cover as a minimum the so-called premature
expense period and should therefore minimize the risk of a strategic deci-
sion having too great a financial impact. In accounting, it clearly states
that when revenue exceeds the costs of the investment, then the period
is over. At this point, one can already refer to ongoing costs instead of
investment costs.34
Revolving As we already noted in strategic planning, revolving planning can also be
planning used for operative planning to increase the quality of planning. Unlike
strategic planning, in revolving planning, the planning occurs five times
each year and is frozen only in the last period. In this way, the plan is
always based on current data.
Centralized and Now, let's look at the organizational aspects of operative planning and
decentralized whether to use centralized or decentralized planning. Centralized planning
planning
means that upper management would produce an overall operative plan
based on an optimal and simultaneous production and financial program.
Decentralized planning means that the program would be run through a
cycle starting with the temporary optimization of the partial production
program of the business area and ending with a follow-up correction of
the production program, if the previously defined financial needs weren't
covered. Given that strategic planning is performed centrally, operative
planning can occur in a decentralized manner without undermining the
specifications of upper management.
Short-Term Operative Level
Short-term operative planning occupies the lowest point in the hierarchy
of planning levels. According to the hierarchical planning logic, the details
of the planning contents increase so that the need for information at the
operative level is significantly higher than it is at the strategic level.
34 For more detailed information, see Koch, 1977, p. 102.
38 Basics of Business Planning
Because of the short planning period (usually one year), short-term oper-
ative plans are less tenuous, and more fixed and structured. This situation
arises because the specifications are set centrally, starting with strategic
planning and moving to mid-term planning. In this context, it must be
emphasized that the character of short-term planning is mostly decentral-
ized and it is also executed in a decentralized manner. Nonetheless, it is
strongly integrated because of the specifications. The step from mid-term
to short-term operative planning also means movement from business-
oriented planning to departmental planning. Accordingly, the planning
tasks are delegated to local management.
The operative budget is also attached to the shortest-term plan, which
implements the operative (action) plan. At the same time, the budgets
are used to monitor the achievement of goals. In this manner and accord-
ing to upper management, the long-term planned specifications are
adhered to at the lowest level. Usually, the operative level and the imple-
mentation level (budget responsibility) are one in the same department,
and the same people work for both of these levels, and in terms of per-
sonnel. For more information on budgeting, see Section 1.1.1.
Two different procedures can be distinguished by regulating the planning Revolving
in terms of time: revolving planning and follow-up planning. Revolving planning and
follow-up
planning occurs in monthly intervals and is adjusted continuously. Follow- planning
up planning, however, always looks at only three months in detail and at
the rest of the fiscal year in quarters. As the planning year continues, the
quarterly plans are supplemented by the numbers of the monthly plan.
Neither of these procedures is preferable, albeit follow-up planning
doesn't have to plan monthly numbers for the entire year. Typically,
revolving planning is the more commonly used procedure.
Now, let's consider the position of Krink, who refers to the typical inside- Short-term
the-box approach to short-term planning.35 By this, he means that plan- operative
planning: criticism
ning is characterized by increases or decreases from one year to the next,
and that operative goals reflect actions that have already been tested and
tried versus new untested methods. He also sees a danger in optimal
decisions made in the short term because they don't take into account
long-term requirements. He writes that it is important for the goals set for
the short-term to be part of a long-term planning concept so that the
strategic goals are not undermined. Although this criticism might be con-
sidered superfluous when compared with the previously described plan-
35 Krink, 1984, p. 15.
Business Foundations for Planning 39
ning levels, we must expressly emphasize the significance of the interplay
between strategic and operative planning.
2.1.2.3 Closing Remarks on Periods and Levels
Readers might have already noticed that in some cases, the various hier-
archical planning levels have been connected to the various planning
periods. The connection is especially clear with operative planning, which
is subdivided into short-term and long-term planning. In the interim,
integrated business planning is the norm and it sets the tone for planning
definitions. For practical reasons, congruence has developed between the
three levels of the planning periods and the planning levels. Accordingly,
strategic planning is always long-term and operative planning is either
mid-term (formerly called tactical planning) or short-term. Consequently,
the planning period should not be viewed as a dimension or characteristic
in the strict sense. Instead, it should be seen as a descriptive characteristic
or as an attribute of the characteristic planning level.
Integration of Figure 2.3 provides an overview of the interfaces between the planning
planning level and periods and the planning levels, as well as of the terms used in this book.
planning period
For the sake of completeness, some authors are noted who speak of tac-
tical planning, whereby both viewpoints mentioned already are distin-
guished.
Planning Very Short- Mid- Long-
Horizon short- term term term
Planning term
Level
Dispositive Note1
Operative
Tactical Note 2 Note 3
Strategic Note 4 Note 4
Legend:
– Black: Definitions used in the book.
– White: Not known in relevant literature.
– Note 1: The relation exists, was defined, but will not be used.
– Note 2: Tactical planning is short-term, operative planning thus mid-term;
representatives of this theory are Koch, Bransemann, Ehrmann etc. (see Ehrmann, 2002, p. 22).
– Note 3: Tactical planning is mid-term, operative planning thus short-term; representatives
of this theory are Hamer, Olfert etc. (see Ehrmann, 2002, p. 22).
– Note 4: Short- and mid-term strategic planning in terms of strategic decisions that have to
be made and implemented rapidly and can thus not be planned as well ahead of time.
Figure 2.3 Linking the Planning Level to the Planning Period
40 Basics of Business Planning
As shown in the previous section, strategic planning frequently involves Procedures of
verbal statements—primarily qualitative statements and trends. It strategic planning
involves the analysis of product–market combinations or strategic business
areas. The primary concern of strategic planning is making decisions on
relationships among strategic business areas (SBAs) to secure the long-
term success of the enterprise. In addition, goals for the SBA (and strate-
gies used to attain these goals) must be formulated, and the means for
their realization (strategic actions) must be worked out. The special diffi-
culties of strategic decisions become recognizable when you try to imag-
ine the specific characteristics of the planning type as a planning period
that extends far into the future, a high level of dynamism in the environ-
ment involving complex decision-making, and so on.
This book does not address what these partially qualitative procedures are
called or how they function, even if they can be quantified. Our concern
is that the quantified, strategically oriented key figures can be part of an
overall model of integrated planning supported by the tools and instru-
ments of strategic enterprise management.
Dynamic simulation is one exception that, in a certain sense, creates a Dynamic
connection between qualitative assumptions that can then be quantified simulation
rather easily and the consequences of which can be displayed rather
quickly, as far as a qualitative statement can be mapped in a model. At the
same time, dynamic simulation also considers the components of the
dynamism: In other words, it looks at the temporal effect. This approach
creates an interesting connection to the operative level: A number pro-
jected for 10 years in the future is projected into the present according to
the context of the dynamic model.
2.1.2.4 Areas
One of the essential classification criteria of the structure of planning is
the differentiation of planning in terms of the areas of the enterprise.
Regardless of which method an enterprise chooses within the category
”planning flow,” planning among the different areas will always take
place. Area planning is inherently a part of operative planning; however,
it must also include or reflect strategic planning.
All area plans can be divided into two principal categories: (1) quantity Quantity and
plans or functions and goods plans and (2) value plans. Note that some value-oriented
planning areas
plans cannot be assigned automatically to either category, for example,
the sales revenue plan, which examines valued quantities, and the per-
Business Foundations for Planning 41
sonnel plan, which examines headcount. However, since the categories
can be ”quantity-oriented” or ”value-oriented,” they can still be assigned.
Quantity-oriented plans include:
Sales, sales revenue, and marketing plans
Production plan and capacity plan
Procurement plan and inventory plan
Personnel plan
Value-oriented plans include:
Investment plan and maintenance plan
Profitability plan (costs and revenues plan)
Planned profit and loss statement
Budgeted balance sheet
Financial budget in the strict sense (i.e., the financial budget on its
own). It differs from the financial budget in the wider sense, which
includes the financial budget in the strict sense, the planned profit and
loss (P&L) statement, and the budgeted balance sheet.
It's impossible to list and describe all the plans discussed in the relevant
literature. This section seeks only to provide readers with a strong foun-
dation in the essential and common subplans so that they can understand
the subplans in the overall context.36
Sales, sales The goal of field planning is to capture the entire product program that can
revenue, and be sold in terms of quantity and value. If it does not look at the entire
marketing
planning product program, it does examine individual industries and services. The
planned quantities valued at the planned prices of sales planning result in
sales revenue planning, which is part of field planning. In addition to sales
and sales revenue planning, marketing planning plans advertising in the
context of budgeting for advertising and plans general sales strategies.
Whenever a buyer's market exists and the planned sales quantities are to
be adapted to the demand, the sales plan becomes the primary plan, the
goal of which is to determine the capacity for creating services in the
future. Therefore, it has a direct influence on investment and disinvest-
36 The literature uses the terms field planning, sales planning, sales revenue planning,
and marketing plan in extremely varied ways. The terms are outlined here accord-
ing to Frank, 1985, p. 13. See Wöhe, 1990, pp. 620f.; Schröder, 1996, pp. 90f.;
and Unger, 1993, pp. 315f.
42 Basics of Business Planning
ment. In terms of integration, this means that the data of the investment
plans is derived directly from the data of the sales plan, taking into
account the information from the production plan and the capacity plan
that is derived from it.
Following Gutenberg, the production plan is divided into a production Production plan
program and planning for actual expenses. Based on the planned sales and capacity plan
quantities, the planned production quantities are derived in the produc-
tion program. The available warehouse stocks and planned minimum
stocks are considered in the process. Planning for actual expenses, as stag-
ing planning, includes the production material required to implement the
planned production quantities. This planning also includes machine
capacities, planning of personnel, raw materials, auxiliary materials, and
expendable supplies. Bills of material can be used to determine the usage
quantities of the planned expendable supplies, and the work plan deter-
mines the planned workforce. Production planning must be closely coor-
dinated with the warehouse stocks and the personnel plan. Capacities,
including machine capacities, are contained in the capacity plan. If the
available capacity is sufficient, the question of being able to use the free
capacity for external processing arises. However, if the available capacity
is insufficient and it cannot be compensated for with temporal (overtime
or shifting production to a different period) or local (outsourcing or exter-
nal production) shifting of the capacity load, the enterprise should con-
sider expanding the capacity, which is the basis of investment planning.
Stock planning should be performed with production planning. First, you Stock planning
must determine what stock is available (inventory). The planned stock and procurement
planning
results from the production program and the planned minimum stocks.
Stock planning includes all stocks of finished and unfinished goods (semi-
finished goods and work in progress) as well as the raw materials, auxil-
iary materials, and expendable supplies. Procurement planning should be
performed on the basis of the planned stocks. Procurement planning
includes the procurement of materials and the planned investments. The
goals of procurement planning are to secure the required materials and
means of production and to optimize procurement in terms of time,
costs, and quality. The procurement and stock plan is a derivative plan
that contains information from the production and investment plan. In
the case of trading goods, the quantities can be derived directly from the
sales plan.
Personnel planning ”includes all the actions and procedures in the enter- Personnel
prise that aim at ensuring the availability of the required personnel capac- planning
Business Foundations for Planning 43
ities, given the individual as the source of dispositive and object-oriented
labor, in terms of both quantity and quality, and at the right time.”37 Per-
sonnel planning includes the planning of personnel needs, which are
derived from various subplans (especially the production plan). It also
uses personnel fulfillment planning to ensure the fulfillment of personnel
needs via appropriate actions. Such actions affect internal (job rotation,
overtime, and so on) and external (hiring in the market) personnel pro-
curement and personnel redundancy. Personnel needs are also guaran-
teed by personnel development planning to ensure that personnel can
support the required performance. At the very least, the personnel plan
should result in information on the planned personnel levels, in consider-
ation of entering and leaving the enterprise, wages and salaries, and addi-
tional financial actions, such as training and guaranteed pension pay-
ments.
Investment plan The investment plan can be divided into two areas: asset planning and
and maintenance investment accounting. Asset planning should ensure that the capacities
plan
required for the planned production volume exist in the enterprise. The
following types of investments can be distinguished: replacement invest-
ments (reinvestments), expansion investments (net investments), and
modernization or rationalization investments.38 In addition to planning
investments in objects (property, tangible assets, and so on), investment
planning is also responsible for planning financial investments (such as
shares in companies) and intangible investments (research and develop-
ment investments). Investment accounting can be performed with asset
planning. It uses financial and mathematical methods to evaluate planned
investments to quantify and ultimately simplify decisions on investments.
If the various actions are planned, maintenance planning ensures that the
planned facilities can be used productively. Repairs and maintenance
actions listed in the balance sheet as retrofits should be planned here.
Sales and profita- All the planned sales revenues (from products and services), sales deduc-
bility planning tions, material costs, and all planned cost center budgets flow into sales
and profitability planning. The profitability plan has a derivative character.
Depending on the need for information, planned costs and earnings can
be displayed at various levels of the product hierarchy. Where they are
displayed depends on the original planning level of the costs and reve-
nues and on the type of planning technique used (a top-down distribu-
tion of total costs to the product level and so on). The profitability plan
37 Kretschmer, 1979, p. 96.
38 Rachlin, 2001, pp. 94f.
44 Basics of Business Planning
delivers the planned operating profit that can also be expanded to take
into account neutral results on enterprise profits. Note that this expan-
sion occurs only in the planned profit and loss statement.
An essential criterion of setting up the profitability plan is the distinction Period and cost of
between total costs and costs of sales. Depending on the design of the sales accounting
plan, planned costs are considered differently. The costs and revenue ele-
ments listed at the beginning follow the logic of period accounting,
because all costs and revenues that occur in a planning year are planned
independently of each other. Although this design establishes a connec-
tion between the planned sales quantities and the planned production
quantity, the concept of period accounting does not require that it be
specified.
If the enterprise wants to set up the profitability plan according to the
cost-of-sales procedure, the costs of sales must be planned based on the
planned sales quantity and thus the planned sales revenues. That also
means that the products to be sold must be determined via a plan calcu-
lation. Each planned sales unit therefore results in at least the planned
revenue (planned sales quantity times the planned sales price per unit)
and the planned sales costs (planned sales quantity times the standard
price of the product). To ensure consistency, this planning design no
longer transfers all product-related costs, such as direct labor costs, mate-
rial costs, and production overhead (all cost elements of the production
costs) into the profitability plan.
The planned profit and loss statement might be identical to the profitabil- Planned profit and
ity plan, depending on its design. Assuming that the profitability plan loss statement
maps only the operating profit, the planned profit and loss statement is a
profitability plan enhanced by a neutral profit. In other words, it does not
consider the expenses and revenue that do not occur because of opera-
tions, such as revenues from financial transactions or extraordinary losses
in the event of fire, and so on.
The following additional details must correct this somewhat simplified
presentation. The profitability plan can include costing-based values,
such as those for amortizations. These costs should be replaced by
accounting write-offs. The same holds true for capital costs that have
been calculated, and for all additional, costing-based items that must be
replaced by accounting-based values or that cannot be replaced, such as
additional costs.
Business Foundations for Planning 45
The following equation generally applies to planning:
Operating profit (from the profitability plan)
+ Costing-based items (from the profitability plan)
– Accounting-based items (according to costing-based items)
– Miscellaneous non-operating expenses
+ Miscellaneous non-operating income
= Enterprise profit
In the context of the budgeted balance sheet, the planned profit and loss
statement must also consider the following case: the correction of asset
balance sheet values. According to law in some countries, the values in the
opening balance must correspond to the values of the closing balance in
the previous year. If the asset balance sheet values in the plan's opening
balance differ from those of the closing balance, the planned profit and loss
statement must consider them as neutral expenses or neutral revenue.
Budgeted balance Unlike the previously noted value-related plans, the budgeted balance
sheet sheet is inventory planning: It displays the planned starting and closing
inventory over time. The design must consider this factor in the integra-
tion of the various subplans so that non-cumulative values and cumula-
tive values are not accidentally confused. Budgeted balance sheet plan-
ning is derived from the balance sheet items. Transferring the inventory
values from the previous year and considering appropriate items in the
planned profit and loss statement can calculate the closing inventory for
the planning year from the opening inventory. However, original plan
data should be captured for many items. Unlike the profitability plan and
thus the planned profit and loss statement, the budgeted balance sheet is
not easy to plan. Various methodologies can be used to support the pro-
cess. Some methodologies are discussed below in a practical example.
Financial budget The financial budget can be derived from the information of the planned
in the strict sense profit and loss statement and the budgeted balance sheet. In this case,
the enterprise should start with the financial budget in the strict sense,
because the financial budget or financial budgeting is sometimes the
totality of the plans being considered: the planned profit and loss state-
ment, the budgeted balance sheet, and the financial budget in the wider
sense. The financial budget includes all the future-related capital transac-
tions. Unlike the plans discussed so far, the financial budget contains only
payment-related values. The key statement of the financial budget is the
comparison of the financial needs with the sources of funds, which must
correspond to the context of planning. According to this principle, finan-
cial budgeting involves covering the planned actions with appropriate
46 Basics of Business Planning
funding. To enable such a statement, the gross coverage principle should
be used: No offset of revenues and expenses should occur.
Depending on the planning horizon, short- and mid-term financial bud-
gets can be distinguished from long-term financial budgets. While short-
term budgets deal with liquidity planning, long-term financial budgets
create a planning framework that does not seek to guarantee the short-
term ability of the enterprise to meet its payment obligations.39 From
here on, we will consider only long-term financial budgets.
The structure of a financial budget can take various forms, especially Various characte-
because the terms financial budgets, flow-of-fund analysis, and financial ristics of the
financial budget
analysis cannot always be distinguished from each other. Accordingly, a
financial budget is best mapped as a transaction balance enhanced with
capital tie-up and capital transfer. The financial budget thus corresponds
to the traditional structure of a transaction balance: It maps the planned
changes of the balance-sheet items and distinguishes between the use of
funds (increasing asset items and decreasing liabilities) and the source of
funds (decreasing asset items and increasing liabilities). Financial funds
that come from freeing up and loading capital are used for tying up and
withdrawing capital expenses. The cash flow can be derived directly from
the financial budget. See Chapter 5 for more details on the structure of
the financial budget and on determining the cash flow.
2.1.3 Planning Flow
Areas can be differentiated in regard to the planning flow:
Planning directions
Planning organization
Planning techniques
The planning direction displays the hierarchical relationship in which
planning is to occur; the planning organization details practical execution
of the planning direction. Ultimately, techniques display methodologies
to support the execution of planning.
2.1.3.1 Direction
Consideration of the planning directions answers the question of the
beginning of the planning initiative. The following three procedures can
39 Heinen, 1983, p. 864.
Business Foundations for Planning 47
be discussed. The last procedure is actually a combination of the previous
two options.
Various planning Top-down planning or retrograde planning
directions
Bottom-up planning or progressive planning
Mixed top-down/bottom-up planning system or integrated, combined
procedure
The three procedures should be viewed in relation to hierarchies and are
therefore typically used with vertical integration. However, in actual prac-
tice, many situations plan at the horizontal level, but do so with various
levels of granularity. Actual examples include planning at the level of cost
centers or cost center groups. Overall, this approach involves simple cost
center planning for each cost center range, but at various levels of aggre-
gation. In this case as well, a hierarchical relationship can be displayed so
that, logically, either the top-down or bottom-up method can be used.
See Section 2.1.4 for detailed information on integration. The following
descriptions assume the traditional use of the term: They refer to the ver-
tical integration of planning levels.
Top-down Top-down planning or retrograde planning inherits the goals of strategies
planning worked out by upper management and listed in hierarchical levels. Its
most extreme variant assumes all goals, strategies, actions, and data as
immoveable matter. The procedure is typically centralized. The advan-
tages of this methodology are the high level of integration between all
subplans at the lowest level of the hierarchy and less of a need for coor-
dination. The disadvantages include less motivation for planning among
employees at the lower levels of the hierarchy.
Bottom-up Bottom-up planning or progressive planning is the exact opposite of top-
planning down planning. Starting at the level of execution, short-term plans are
determined and then aggregated above in an additional step. Departmen-
tal plans are linked to the area plans and then to the overall enterprise
plan. The active participation of employees makes their motivation corre-
spondingly high. The disadvantages are the lack of actual goals and the
danger that the new plans are created from additions and subtractions
from the old plans or even real values. Doing so would lead to an adjusted
continuation of the status quo at an enterprise. In addition, the planners
might build in safety buffers so that the plan is always achieved. Long-term
strategic planning would lose its means, and the meaning of planning,
which should design the future through systematic preparation, would be
48 Basics of Business Planning
contradicted. In conclusion, it's important to note the high amount of
effort needed for coordination between the several planning subjects.
A mixed form has developed in response to the advantages and disadvan- Mixed top-
tages of the previous procedures: the integrated combination procedure or down/bottom-up
planning system
mixed top-down/bottom-up planning system. The desired sequence is
derived from the disadvantages noted above: top-down planning fol-
lowed by bottom-up aggregation. With this approach, many of the disad-
vantages already noted fall away without a simultaneous loss of the
advantages. One disadvantage that remains, however, is the effort for
coordination required by bottom-up planning. And Michel indicates a
need for increased time and therefore higher costs.40 Nonetheless, expe-
rience shows that most enterprises plan according to the mixed top-
down/bottom-up planning procedure.
The discussion of the disadvantages of the mixed top-down/bottom-up
planning system repeatedly uses the terms time and money. Apart from
the higher effort for coordination, which of course means more time, it's
important to note the time advantage that a software product offers in
the context of planning. If a well-functioning workflow is linked to the
product, the time required to organize planning can also be reduced.
Everyone can see the status of the plan and correct the plan data as
needed.
2.1.3.2 Organization
According to Kretschmer, work management of planning can be divided
into the following categories:41
Organization of the planning work (who does what)
The responsibility for planning (internal planners, employees, or exter-
nal planners; the subdivision into central and decentral planning)
Execution of planning (flexibility of planning, risks of planning, and
planning fundamentals)
Because implementing planning with software takes care of the problem
with work management, this book does not address this question further.
It will define more exactly only the characteristics of centralized and
decentralized planning because they will be used frequently in later dis-
cussions.
40 Michel, 1991, pp. 43f.
41 Kretschmer, 1979, pp. 127ff.
Business Foundations for Planning 49
Centralized Centralized business planning means that ”the entire upper management
business planning team makes planning decisions: on (long-term) planning of investments
(perhaps including financing) and on short-term planning of ongoing pro-
duction.”42 In addition, in the ideal case, a central planning instance also
exists. This instance consists of upper management itself or a central con-
trolling department and issues planning guidelines as a planning manual,
specifies the general framework (premises, trends, and so on), and mon-
itors adherence to the guidelines and framework (audit function).
Decentralized ”The level of decentralization in business planning means the amount of
business planning planning functions that the uppermost level of management delegates to
lower instances.”43 This type of planning exists as the opposite of central-
ized planning. Its extreme form can mean the delegation of all planning
activities to business areas or functional areas. Upper management simply
monitors the coordination of the activities. The employees who are even-
tually responsible for reaching the goals of the plan are intimately
involved in creating the plans themselves. Employee motivation is there-
fore quite high.
As has become clear, both forms of work management present extremes.
The ideal case requires a mixture of the two forms. An exact parallel to
the mixed top-down/bottom-up planning system exists here. Top-down
planning occurs first; it sets the long-term overall goals and strategies
centrally. Bottom-up planning is then performed and a feedback process
is initiated.
2.1.3.3 Techniques
Planning techniques display options that can simplify planning or increase
its quality. The literature notes the following techniques:
Overview of Planning reserves
planning Integration of planning reserves to create buffers for the future. This
techniques
design is avoided because of the potential for lack of clarity about the
scope and effects of planning reserves in the context of plan integra-
tion.
Contingency planning
These desk-drawer or emergency plans can be helpful with the high
risk of long-term planning; they consider worst-case scenarios.
42 Koch, 1977, p. 34.
43 Koch, 1977, p. 27.
50 Basics of Business Planning
Alternative planning
Planning versions that can store various alternatives for planning.
Rolling forecast
Maps expired planning to future planning.
Feedback
Ex-ante and ex-post feedback are two ways of influencing long-term
planning by the use of short-term planning
Based on their significance for planning, the following techniques apply
only to alternative planning, rolling planning, and feedback.
Planning alternatives are used whenever some uncertainty about planning Planning
exists. The theoretical creation of alternate planning scenarios increases technique:
planning alterna-
the level of security and lowers the risk of creating an erroneous plan, at tives
least subjectively. Alternative planning can involve more effort, but the
effort depends largely on how the numbers for the alternative plan were
generated. If they were derived intuitively or as part of comprehensive
benchmarking activities, they will require more effort. However, if they
were generated by computer or even by extrapolation, no additional time
is needed. As will become clear later on, integrated planning systems
such as SAP SEM-BPS offer the appropriate functions.
Rolling forecast refers to the ongoing updating of plan values along the Planning
temporal axis. The basic principle involves the transfer of new and more technique:
rolling forecast
up-to-date knowledge into the existing plan data. The knowledge might
come from deviations from the actual plan, or from the plan data itself. At
the same planning level, the act of rolling planning means that the
expired annual plan is included in the remaining annual plan. If the plan-
ning involves a sales organization, the remaining plan values are increased
or decreased accordingly. Another example of the use of a rolling plan
comes into play when the planning areas themselves are planned in a roll-
ing manner. For example, the adjusted plan data from the short-term plan
is updated into mid-term planning; it is recalculated and transferred to
long-term planning. Ultimately, the new short-term plan created by roll-
ing planning directly affects the long-term plan. However, this type of
rolling planning should be used with caution so that the problems of bot-
tom-up planning do not occur.
Unlike the following planning technique (feedback), rolling planning is a
matter of calculation. Feedback has more to do with the information pro-
cess.
Business Foundations for Planning 51
Planning Feedback44 is a technique primarily used in hierarchical, vertical, or tem-
technique: poral integration. It signifies a clear delineation from the feedback used in
feedback
the integration (horizontal integration) of subplans, which is called inter-
dependence in this book. Feedback assumes that short-term planning
must influence long-term planning along the hierarchical organization.
This approach results in a high level of data conformity in planning.
Ex-ante feedback Two procedures can be distinguished: ex-ante and ex-post feedback. Ex-
ante feedback occurs during the short-term operative phase as the last
step in overall planning. It begins with the principle that operative plan-
ning can produce results that might cause a rethinking of strategic plan-
ning. Actual values are not yet available for the planning period. Long-
term planning is checked against the results of operative planning in a
loop. It is corrected if necessary, so that the new default values are trans-
ferred to lower levels in a top-down approach. If needed, the loop can
run through several cycles.
Ex-post feedback Ex-post feedback, however, already includes actual data. Once the first
deviations between the plan or target values and actual values have
appeared, this data is transferred to mid-term and long-term planning in
a bottom-up approach. Accordingly, the results of the deviation don't
apply to the current planning period; they apply to later planning periods.
Because of the time lag, this type of planning is also referred to as plan-
ning in spirals.
2.1.4 Planning Integration
Planning integration is an essential component of this book. This section
discusses the basic issues of terminology and describes the integration of
(functional) subplans at a more detailed level. Because of the importance
of integration, we have chosen to address it as a separate section rather
than as a part of the structure of planning section. Here, we will also show
that planning integration cannot be depicted as separate from the flow of
planning.
Planning types As illustrated in Figure 2.4 and as adapted from Ehrmann, four planning
with a focus on forms can be distinguished:45
integration
Isolated area planning
This is planning without any kind of integration—an extreme case that
is not relevant to actual practice.
44 See especially Koch, 1977, pp. 56f.
45 Ehrmann, 1999, pp. 62f.
52 Basics of Business Planning
Centralized business planning
This is completely integrated planning that considers all the potential
interdependencies of the subplans. It begins with a total model that
considers all dependencies and limits as auxiliary conditions. It is also
known as simultaneous planning. It involves an additional and idealized
design that is not relevant to actual practice.
Decentralized business planning
This approach follows the same principle that centralized business
planning does, but with one essential difference. It is performed cen-
trally and later submitted to a higher instance for approval. This is the
most common planning model used.
Hierarchical business planning
This is an attempt to create the best possible combination of central-
ized and decentralized planning. It is characterized by horizontal and
vertical integration that leads to processes for coordination and feed-
back. Out of all integration scenarios mentioned here, this is the only
one considered in the book.
Planning Types
with regard to
Integration
Isolated Centralized Hierarchical Decentralized
Planning Planning Planning Planning
Total Model Vertical Decomposition
- Top-down Horizontal Integration
- Bottom-up
- Mixed
(Simulation
Planning)
Figure 2.4 Planning Types Differentiated by Aspects of Integration
In theory, hierarchical business planning (also called integrated business Hierarchical or
planning in the following) is subdivided into a vertical and horizontal view integrated
business planning
and a temporal view. The subdivision would also theoretically pose four
integration problems, as illustrated in Figure 2.5.
Business Foundations for Planning 53
Vertical Horizontal
1 2
Factual The problem in subplans is often the Subplans are planned at the
(Planning Areas) planning at different hierarchical same level and are dependent
levels (e.g., cost center group of one another either
vs. cost center etc.). unilaterally ormutually.
3 4
Temporal Plans with a different time Nonexistent;
(Planning Levels) horizon or plans at different the only possibility would be
planning levels are always the distribution of e.g.,
related to each other in a annual figures on a monthly basis
hierarchicalhierarchical order. within one planning level.
Legend:
– Gray fields: classical integration areas
– White fields: exotic variants (both very practice-oriented)
Figure 2.5 Matrix of Various Integration Levels
The vertical and In practice, two additional dimensions can be examined in parallel, result-
horizontal ing in vertical or temporal integration (case 3) and horizontal or factual
dimension
integration (case 2). The vertical dimension involves integration of various
planning levels (strategic and short- or mid-term operative planning); the
horizontal dimension involves integration of subplans within a planning
level. Although cases 1 and 4 occur in real business scenarios, they don't
warrant enough significance to be delved into here.46 The practical sec-
tion of this book, which deals with the relevant requirements, will show
you how to implement the requirements with SAP SEM-BPS.
Coordination A central element of integrated business planning is coordination. It can
be understood as a coordinating process among the plans. Coordination
becomes more difficult as planning becomes shorter. This situation occurs
due to the increased involvement with planning and the resulting diffi-
culty of distributing limited resources. It therefore comes down to the
level of coordination that will determine the quality of planning and the
performance of the overall planning system.
In vertical integration, the following principles apply: sequencing (induc-
tive procedure, from short-term to long-term planning), scaling, and
nesting (deductive procedure, from long-term to short-term planning). In
horizontal integration, there are two categories of coordination—interde-
pendence for coordinated plans and dependence of superordinate or
46 They are not mentioned in the literature.
54 Basics of Business Planning
subordinate plans. In the following sections, we'll look at the individual
elements of coordination.
Figure 2.6 summarizes the problem of coordination and illustrates the
dimensions of the period and planning level.
Planning Year
1 2 3 4 5 … 10
Strategic
Top Plan long-term
Management Definition planning
Centralized and
integrated
Middle Mid-term
Plan operative
Management
Processing planning
Partially centralized
and still fully integrated
Execution Plan Short-term
Execution … operative
Level
planning
Decentralized
Note: Annual planning process that affects all planning levels
Figure 2.6 Vertical and Horizontal Coordination in Integrated Business Planning
2.1.4.1 Vertical or Temporal Integration
In SEM literature, the vertical or temporal integration of planning is
becoming increasingly more important. Therefore, the goals of long-term
planning are implemented in mid-term and short-term plans. However,
the deviations identified at the level of short-term operative planning are
analyzed and made transparent in terms of their effects on the long-term
strategies.47 In part, the use of the Balanced Scorecard deals with this
aspect of integration and the traceability of planning specifications up to
the lowest level of execution in an enterprise. The concept of the Bal-
anced Scorecard begins with the vision of upper management, formu-
lated in strategies. The strategies are then realized in operative target val-
ues that ultimately function as the basis for measuring the success of
reaching the goals.
47 Friedl, 2002, p. 163.
Business Foundations for Planning 55
The Balanced Scorecard is also part of the design of SAP SEM, but is
assigned to the area of Corporate Performance Monitor (CPM) and not
Business Planning and Simulation (BPS). A detailed description of this
concept lies outside the scope of this book.
Coordinating As indicated, there are several coordinating approaches that can be used
approaches to in the integration level of planning:
vertical
integration Sequencing or inductive method
Scaling
Nesting or deductive method
With sequencing or the inductive method, coordination can involve every-
thing from short-term operative plans to long-term strategic plans. This
coordinating approach is top-down.
Scaling or partially temporal superposition is used when there is an overlap
of the individual planning levels. This means that the second semiannual
period of short-term planning can be identical to the first seimannual
period of mid-term planning, or the third year of mid-term planning can
correspond to the first year of the following long-term planning.48
The third approach is nesting or the deductive method, which is integrated
planning. It deductively derives the mid-term and short-term planning
inherent in long-term strategic planning. This approach is also top-down.
Comparison of When you compare the three coordinating approaches and have to select
coordinating one of these methods, you see that only deductive planning can exist
approaches
because it is the only approach derived from long-term planning. This
method is the only way to fulfill long-term strategic goals. Because all
three methods are available, it makes sense to use all three. However, the
order is important. Always begin with a deductive approach, and then
implement a mixture of the inductive method (method 1) and scaling
(method 2). This approach results in an almost ideal version of vertical
integration. The procedures described here are reminiscent of the feed-
back described in the planning techniques, which consider either ex-post
or ex-ante feedback results from the operative level to the strategic level
(see Section 2.1.3).
48 Bussiek, according to Ehrmann, 1999, p. 249.
56 Basics of Business Planning
In his book on business planning, Koch describes how to perform vertical Performing
integration in terms of workflow management.49 According to Koch, the cen- vertical
integration with
tral instrument is the budget. The plan values of one level are given to the workflow
lower instance as a budget. In this sense, the term budget—which previously management
was considered to be only the realization of the short-term operative plan—must
now be expanded to include the mid-term planning level. In principle, the
expansion doesn't change the definition of the term; it simply enhances it.
The individual steps of vertical integration are described as follows (see
Figure 2.7):
1. The management of the enterprise uses strategic planning to establish
the guidelines of strategic actions for the managers of business areas.
Long-term planning includes both qualitative statements and quantita-
tive specifications that must be adhered to.
2. The management of the business areas recommends several operative
plans that are later assembled into an overall operative plan. The plan
contains the operative actions for executing the strategy defined for
the area. It also provides some benchmark values (such as plan reve-
nue, plan profit, plan costs, plan capital, and so on) that must be fol-
lowed during the execution of the plan.
3. Management uses a brief feedback cycle to check and correct the
planned actions and benchmarks. It then approves the overall opera-
tive plan, which is returned to the business areas. The mid-term oper-
ative plan is approved in this manner. The operative budget figures help
to generate and control the mid-term plan.
4. The first period of the planning period (the first of five planned years)
is thus binding and represents the short-term operative budget. The
framework plans for the remaining two to five years function as orien-
tation guidelines.
5. The specifcations from the operative budget now represent the attain-
ment of the short-term operative plans in the functional departments.
These plans deal with investments, disinvestments, sales quantities,
production quantities, procurement quantities, and so on.
6. Monthly (by the department heads) and annual (by upper manage-
ment) controls provide sustained monitoring of and adherence to the
budget.
7. Ex-ante and ex-post feedback can provide upper management with
valuable information.
49 Koch, 1977, pp. 53ff.
Business Foundations for Planning 57
1 Strategic Planning
Management
Ex-post
Feedback with strategic instructions for actions
Feedback Annual
3 Process Budget Control
2 Mid-term Operative Planning Divisional Management
7 and Central Organizational
with mid-term operative budget allowance Units
Monthly
6 Budget Control
Ex-ante
Feedback
4 Short-term Operative Planning
Functional Departments
with short-term operative budget allowance 5
Figure 2.7 Coordinating Steps of Vertical Integration
2.1.4.2 Horizontal or Factual Integration
Horizontal integration deals with linking the plans into operational func-
tions (sales, production, procurement, and so on). The problem of coor-
dination primarily addresses the removal of bottlenecks, but only for
short- and mid-term plans. It would be harmful for an enterprise to look
at the long term by focusing on bottlenecks. The most common bottle-
necks are related to sales (prevailing in a buyer's market), capacity (the
number of incoming invoices overwhelms the capacity of production), or
procurement (materials are difficult to procure or can be procured only in
the long term). According to Gutenberg, the equalization law of planning
applies when bottlenecks appear. This law maintains that while an enter-
prise must concentrate on bottlenecks in the short term, it should elimi-
nate them in the long term. In general, two options are recommended to
remove a bottleneck (also called a minimum sector): successive planning
and simultaneous planning.
Horizontal Starting with a subplan that originates because of a bottleneck, successive
integration: planning processes all further subplans. In other words, based on this bot-
successive
planning tleneck or restriction, first planning values are given and are therefore the
basis for other subplans that follow. That results in a coordinating prob-
lem for the sequence in which the subplans are to be created and
approved. A closer look at the terms interdependence and dependence as
coordinating instruments of horizontal planning can help.
Horizontal Interdependence begins with plans at the same level that have reciprocal
integration: inter- relationships, in the sense of internal exchanges of services. Iterations can
dependence and
dependence be used to calculate the reciprocal relationships to a selected break as
exactly as possible. Planning software or at least a computer tool is indis-
pensable here.
58 Basics of Business Planning
Dependence includes all the subplans with a unilateral relationship to each
other. As a rule, only the starting plan (possibly even the bottleneck plan)
should be set here: The other, derivative plans can be derived in a defined
sequence. In actual practice, however, several plans might have a depen-
dent relationship to each other, much like in a chain. The first and last
links (subplan) of the chain have an interdependent relationship to each
other. In this case, the way to a solution is much more complicated.
Simultaneous planning is the theoretical answer to the requirement that Horizontal
all planning (in consideration of the bottleneck) is to be created in one act integration: simul-
taneous planning
and as a unit. A mathematical decision model looks at all the subplans
and their dependencies. It considers the restrictions as auxiliary condi-
tions and creates an overall goal from the relationships. The result is a cal-
culated optimum. Various procedures in the area of operations research
are used to deal with these total models. They are a part of centralized
planning. Because they have little practical significance, we will not dis-
cuss them any further here.
Along with the subplans already described, we'll now look at the depen-
dencies and interdependencies between the individual subplans. We'll
look first at a global view and then at integrated financial budgeting,
which is an essential foundation for the later practical section.
Plan Areas (Subareas) Overall
Figure 2.8 illustrates the subplans described above in light of their depen-
dent and interdependent relationships. The figure distinguishes among
the pure relationships of the subplans, the quantity flows, and the value
flows.
The integration scenario displayed here considers two essential Assumptions of
approaches: the planning
scenario
From the logistics view (quantity planning), the planned sales quantity
rather than the production or procurement plan is considered as a bot-
tleneck.
From the financial view (value planning), planning is mapped formally
according to the overall cost procedure.
Regarding planning integration, the distinction between cost of sales
accounting and period accounting is important, especially when plan-
ning material costs and production costs (all costs that flow into the
cost of sales and thus into manufacturing costs).
Business Foundations for Planning 59
Figure 2.8 Integrated Quantity and Value Flows of Plan Areas (according to Schröder,
1996, p. 94) 50
Sales and revenue Starting from the planned sales quantities, which are the result of inten-
planning sive market research and are a part of the marketing plan, information can
be transferred directly to procurement. In addition, planned revenue is
calculated based on the planned sales prices. Revenue decreases should
be planned for or taken into account as part of the overall sales plan.
50 For other integration scenarios, see Fischer, 1996, p. 49; Mag, 1995, p. 131;
Kretschmer, 1979, p. 84; and Frank, 1985, p. 14.
60 Basics of Business Planning
For the profitability plan, the results include directional information on
the planned revenues, decreased revenues, and the overhead sales costs
of the various sales and marketing cost centers.
As soon as the planned sales quantities have been determined, the pro- Production
duction plan can be created. Investment decisions must be made, depend- planning
ing on the existing production capacities. At the same time, the inventories
of raw materials, auxiliary materials, and expendable materials are to be
planned according to the planned output of production. The investment
decisions, the planned inventories, and the planned goods from the sales
plan flow into the procurement plan, which then redirects the resulting
procurement costs into the profitability plan. As part of production plan-
ning, the bill of materials (BOM) explosion results in planning the materi-
als to be used. The planned workforce can be derived from the work plan.
The personnel plan can be used to calculate wages.
For the profitability plan, direct labor and overhead production costs, as
well as material costs, can be derived from the production cost centers.
The plant maintenance plan, which is for the maintenance of existing and Plant maintenance
planned facilities, can be created according to the capacity plan. The planning
planned costs of plant maintenance have a direct impact on the profit-
ability plan. And given that plant maintenance provides services to third
parties (other companies in the group or within the enterprise), planned
revenues are also transferred to the profitability plan.
The result of the personnel plan includes the information for the production Personnel
plan and administrative costs that are transferred to the profitability plan. planning
Completion of the profitability plan lacks only the information from the Profitability
investment plan that includes amortizations, additional overhead costs to planning
be planned (such as research and development costs, common administra-
tive costs, service costs that have not yet been distributed to the final cost
centers as part of allocations in general or cost allocations, and similar data.
Depending on the planning principle, the neutral result must be recorded.
The neutral result tells you what other factors are not directly connected to
an enterprise's operation that will influence the overall result.
The planned profit and loss statement is derived directly from the profit- Financial
ability plan, with the possible additional consideration of the neutral budgeting in the
wider sense
result. Depending on the planning logic, differences can exist between
the budgeted balance sheet, the financial budget, and the planned profit
and loss statement because various dependent and interdependent rela-
tionships can exist between the information in the investment plan and
Business Foundations for Planning 61
the profitability plan. Regardless, profit and loss information flows into
the budgeted balance sheet and the financial budget is derived primarily
from the budgeted balance sheet and the profit and loss statement.
Special Aspects of Financial Budgeting
A more precise examination of the value flow of this planning scenario
reveals several dependent and interdependent relationships that require
more attention.
Some basics For the cumulative values (in contrast to the non-cumulative values of the
from business budget balance sheet), it is inevitable that you will repeat some basic def-
administration
initions and limitations from business administration. The description of
the subplans has already displayed some differences between the profit-
ability plan (in the stricter sense as operating profit controlling) and the
planned profit and loss statement. Similar limitations apply to the finan-
cial budget. It's best to illustrate the various terms with the steps familiar
from the related literature (see Figure 2.9).
Figure 2.9 Differentiation of Costs and Revenues from Outpayments/Inpayments
Description of the Without going into detail,51 the steps are a simple way of showing that
step function the values that are part of the planned profit and loss statement differ
from those of the profitability plan in regard to the costing-based costs
and the neutral expenses and revenues. In the same way, when consider-
ing the financial budget, it must be noted that not all expenses and reve-
nues go into the profit and loss statement. The profit and loss statement
includes only the expenses and revenues that are linked to the payment
51 For more detailed information, see Wöhe, 1990, pp. 964ff.
62 Basics of Business Planning
of an incoming or outgoing expense or revenue. This differentiation is
important and helps us to understand why amortizations are not part of
the financial budget. They are financially neutral and unrelated to finan-
cial accounting.52 Table 2.2 can help to summarize the distinctions
between the profit and loss statement and financial accounting.53
Profitability Planning Profit and Loss Statement Financial Statement
+ External activities + Sales revenues + Receipts from sales reve-
+ Internal activities + Activated internal activity nues (time lag)
+… + Receipts from …
= Total Revenue = Total Income = Total Receipts
– Material costs – Material expenses – Disbursement for
– Personnel costs – Personnel expenses material
– … – … – Disbursement for per-
sonnel
– Costing-based interest – Interest
– …
– Costing-based risks – Provisions
– Disbursement for
– Costing-based amorti- – Amortization interest
zation – Commercial earnings tax – Provisions
– Costing-based – Corporate taxes
employer's salary – Amortization
– Commercial earnings tax
– Corporate tax
= Operating Profit = Result (Profit and Loss) = Surplus and Deficit
Funds/Outgoing and
Incoming Funds
Table 2.2 Differentiation of Profitability Analysis, Profit and Loss Statement, and Finan-
cial Statement53
Now that it has become clear which differentiations are to be made, we
can look at the next step—the relationships between the individual sub-
plans in light of the budgeted balance sheet.
The profit and loss statement indicates the expenses and revenues that can Budgeted balance
be derived from the profitability plan, but the financial budget shows all sheet and planned
profit and loss
the planned income and expenses related to capital. The latter can be statement
derived directly from the planned profit and loss statement and can be
determined directly from integration with the budgeted balance sheet. If
52 See Michel, 1999, p. 59f.
53 Adapted from Michel, 1999, p. 60. In the financial accounting column, outgoing
and incoming payments are also to be considered theoretically in addition to
expenses and revenues.
Business Foundations for Planning 63
the influence of the planned profit and loss statement on the budgeted
balance sheet is also considered, the planned profit and loss statement (in
the context of expanded, integrated financial budgeting) corresponds to
the original plan with the financial budget as a derivative plan. In this
context, the budgeted balance sheet appears intermediate. Regarding
integration, the budgeted balance sheet records (from the other side,
according to accounting logic) the account balances of both flow items
(the planned profit and loss statement and the financial budget). In the
ideal case, the balances of both plans are balanced. In terms of values, the
following equations are applicable:
Planned profit and loss: expenses = income
Budgeted balance sheet: assets = liabilities
Financial budget: use of funds = source of funds
As you will see in the ”practical section” (see Chapter 5), the ideal case is
rarely available. Nonetheless, you'll learn how to create a balance in plan-
ning with the help of calculations.
Figure 2.10 clarifies the interplay of the subplans and also references var-
ious transactions in the enterprise.
Transaction Planned Profit and Loss Budgeted Balance Sheet Financial Budget
Expenditure Income Contemplation of Deltas Earnings Disbursement
+A/-L
- -A/+L
-A/+
I Profit Payments
Earnings
Disbursement
Non-payment
(costing-based) Income
Example: Receivables
Non-payment
(costing-based) Expenditures
Example: Liabilities
II Investment and
financial payments
Invest
Investment Expenditure
Credit Expenditure
Equity Expenditure
Disinvestment Measures
Credit Revenues
Equity Revenues
III Profit Balance
Profit
Loss
IV Liquidity Balance
Note : If the arrow points directly to the line, both cases are considered together
(see profit balance or liquidity balance)
Figure 2.10 Interdependencies of Planned Profit and Loss, Budgeted Balance Sheet,
and Financial Budget (Changed According to Lachnit, 1989, p. 133)
64 Basics of Business Planning
Index
A Business Planning and Simulation 118,
ABAP List Viewer 395 395
ABAP/4 395 BW 123, 395
Account model 100 BW queries 304
Accounting depreciation 45 BW-Applications 251
Activity types 271
Ad hoc package 136 C
Administration layer 82, 84 C&P 395
Advanced Business Application Capacity planning 43, 61
Programming 395 Cash flow 297, 395
Advanced Planner & Optimizer 395 direct 229
ALV 395 indirect 229
APO 395 CB 395
Assessment 174 CC 395
Asset accounting 270, 396 CCtr 395
Asset history sheet 273 CF 395
Asset planning 44 Characteristic
Attributes 90, 147 key figure name 163
planning area 147
B planning item (OSEM_POSIT) 147
BA 395 Characteristic derivation 319, 328
Balance sheet planning 228, 317, 366 Closing balance 395
Balanced scorecard 148, 395 CO 395
Basic characteristic 90 CO-CCA 395
Basic InfoCube 97, 123 Communications structure 84
BCS 395 Company code 395
BEx 99, 395 Concurrent costing 117
BEx Analyzer 86 Consolidation 396
BEx Map 86 Constant model 168
BIC 395 Controlling 395
Bottom-up planning 48, 144 Controlling Area 395
BPS 395 CO-OPA 395
BSC 395 CO-PA 245, 395
Budget 24 Corporate Performance Monitor 395
Budgeted balance sheet 46, 61, 64, 281 COS 395
Business Analytics 113, 395 Cost and Profitability 395
Business blueprint 260, 267 Cost center accounting 395
Business consolidation 118, 395 Cost center planning 222, 237, 269,
Business content 105, 219, 230 301, 308, 319, 320, 343, 353
Business Explorer 86, 93, 395 Cost centers 395
Business Explorer Analyzer 86 maintenance 270
Business Explorer Map 86 Cost elements
Business Information Collection 395 primary 269
Business Information Warehouse 395 secondary 270
Cost of goods manufactured 395
Index 399
Cost of sales 395 Ex-ante feedback 52
Cost of sales accounting 275, 395 Ex-post feedback 52
Costing engine 115 FI 396
Costing-based amortization 45 FI-AA 396
CPM 395 Field planning 42
CRM 395 Finance 396
CRM analytics 114, 116 Financial analytics 114, 115, 222, 225
CSA 395 cost and profitability management
Cumulative value 94 115
planning, budgeting, and forecasting
D 116
Data compression 384 Financial budget 291
Data model 123 Financial budgeting 304, 314, 373
Data modeling 85 in the stricter sense 46, 61, 62
Data selection 207 in the wider sense 61, 301, 316, 328,
Data target 96 349
Database 395 integrated 301
Dataset 206 Financial enterprise planning 23
DB 395 Financial Supply Chain Management
Debit and Credit (Account Posting) 396
396 Flat Rate Value Adjustment 396
Dimension ID 396 Flat structures 87
Dimension table 88 Flow-of-funds analysis 47
DIM-ID 88, 396 Forecast 25
Distribution 174 Forecast function 168
top-down 270 Formula FOX function 162
Documents function 189 FSCM 396
Dynamic Simulation 109
G
E Global parameters 158, 268
EC 396 Graphical User Interface 396
EC-CS 396 GS 396
Enterprise Controlling 396 GUI 396
Enterprise Resource Planning 396
Equalization law of planning 58 H
Equity Capital 396 Hierarchies 90, 141
ERP 396 SAP BW 141
Execution of planning 121 SAP SEM 141
Exit function 167 Hierarchy types 141
Expanded star schema 97 HR 396
Extraction layer 82, 83 HR analytics 116
Human Resource 396
F Human resource analytics 114
Fact table 88
FAQ 396 I
Favorites in SAP GUI 200 IM 396
Feedback 52 Implementation 351
Inflow Layer 83
400 Index
InfoCube 85, 96, 302, 307 N
InfoObjects 89, 316 Net present value 185
InfoProvider 96, 123, 307 method 185
InfoSource 84 Node model 100
Integrated enterprise planning 23 Non-cumulative values 94
Integration 235, 279
temporal 55 O
vertical 55 Object Linking and Embedding 396
Integration flows 375 ODBO 396
Integration layer 84, 85 ODS 396
Internal interest rate method 185 ODS object 85
Internal percentage rate 185 Offset 140
Inventory planning 61 OLAP 111, 120, 396
Investment accounting 44 OLE 396
Investment management 396 OLE DB for OLAP 396
Investment planning 44, 61, 232, 273, OLTP 111, 396
317, 329, 360 Online Analytical Processing 396
IT design 260, 264, 299, 352 Online Service System 396
Online Transactional Processing 396
K Open request 103
Key figure model 100 Opening balance 396
Key figures 94, 297, 373 Operational Data Store 396
Optimization 377
L Optimization areas 380
Layout builder 191 OSS 396
Layouts 190, 207 Outside capital 396
Liquidity key figures 298 Overhead project accounting 395
ListCube 104
Lock concept P
planning objects 146 PA 396
Locking concept Performance measurement 118, 119
transaction data 146 Period accounting 277, 396
Persistent staging area 83, 397
M Personnel planning 43, 61
Maintenance planning 44 Plan parameters 374
Marketing planning 42 Plan profit and loss statement 277, 331,
Materials Management 396 365
Memory design 145 Plan types 27
Mixed top-down/bottom-up planning Planned profit and loss statement 45,
49 230
Mixed top-down/bottom-up planning Planning
system 74 bottom-up 144, 214
MM 396 centralized 38
Modeling 123, 307 decentralized 38
Modeling concept 16 dispositive 30
MultiProviders 99 integrated strategic 33
mySAP Business Suite 110 long-term 30
mySAP Financials 110, 112 mid-term 29
Index 401
mid-term operative 36 Profitability analysis 395
personnel costs 160 Profitability key figures 299
progressive 48 Profitability planning 61, 275, 300, 304,
retrograde 48 311, 323, 345, 348, 356
revolving 38, 39 Project phase
rolling 51 cutover 262
short-term 29 design 264
short-term operative 38 implementation 261, 265
strategic 31 optimization 262
strategic perspective 32 planning 248, 259, 263
tactical 36 Project systems 397
top-down 144, 214 PS 397
with bottlenecks 58 PSA 83, 397
Planning alternative 51
Planning areas 27, 267 R
Planning cockpit 196 Reposting 156
Planning environment 123 Retractor 245
Planning folder 196 cost center accounting (CO-CCA)
Planning functions 241
business 149 profitability analysis (CO-PA) 246
freely definable 149 project planning (PS and IM) 248
predefined 149 Revaluation 157
Planning layout 305, 342 Revenue planning 60
Planning level 27, 134 RFC (Remote Function Call) 129
Planning package 136 Risk assessment 211
Planning period 27, 28
Planning profile 137 S
Planning purpose 27 Sales and profitability planning 44, 225
Planning sequence Sales planning 42, 60
global 188 Sales revenue planning 42
local 188 SAO SEM-BIC 120
Planning structure 27 SAP Business Information Warehouse
Planning workbench 122 82
Plant maintenance planning 61 SAP BW hierarchy 142
PLM 396 SAP BW settings 87
PLM analytics 117 SAP R/3 236, 385
Powersim 16, 203 SAP SCM 397
Powersim dataset 206 SAP SEM Hierarchy 141
PP 396 SAP SEM-BCS 118, 119
Presentation layer 82, 85, 104 SAP SEM-BPS 15, 107, 109, 118, 120,
Procedure model 258 205, 228, 236, 385
Procurement planning 43, 61 SAP SEM-CPM 118, 119
Product cost planning 272 SAP SEM-SRM 118, 120
Product Lifecycle Analytics 114 SAP SRM 397
Product Lifecycle Management 396 SCM analytics 117
Production planning 43, 61, 396 Scope definition 267
Profit and loss planning 61, 62, 63 Season model 168
402 Index
Secondary cost planning 238 Transaction data 88
SEM → see SAP SEM-BPS Transactional cube 123
SEM/BW project 263 Transactional InfoCube 97, 102
SID 89 Transactional structure 87
Simulation 209 Transfer rules 84
Simulation cockpit 210 Transformation layer 84
Simultaneous planning 59 Trend model 168
Staging 85 Trend-season model 168
Staging engine 85
Stakeholder relationship mana- U
gement 118, 397 Update rules 85
Star schema 87
Statistical key figures 270 V
Status and Tracking System (STS) 211, Value Network Analyzer 397
397 Variable 138, 320
Stock change 397 authorization 138
Stock planning 43 exit 138
Strategic business areas 41 fixed value 138
Strategic decision 32 numeric value- 157
Strategy management 118, 119 user-specific value 138
STS 397 Visual Basic 397
Successive planning 58 VNA 397
Supply chain analytics 114
Supply Chain Management 397 W
System 67 Web Application Designer 86
System dynamics 67 Web Interface Builder 200
System limit 68 Work Breakdown Structure Element
397
T
Three-layer model 82 Z
Top-down distribution 325 Zero-base budgeting 16
Top-down planning 48, 144
Index 403